Rates priced to rise, but economists split
Financial markets are leaning toward a notably higher official cash rate (OCR) even as major bank economists question whether the Reserve Bank should move at all.
Local pricing still implies several 25bp hikes over the next year, echoing RBA’s move to 4.35% and ongoing global inflation concerns.
ASB is forecasting OCR increases from around July, while Westpac has brought its first hike forward to September. Kiwibank, by contrast, argues recent pricing is too aggressive, saying “We believe we need zero… none… nada. Wait and see.” ANZ has also signalled more tightening, forecasting three RBNZ hikes from July as inflation continues to climb.
The split highlights an unusually high level of uncertainty over the policy path, despite markets having largely adopted a “hiking cycle” narrative in response to global inflation and energy shocks.
Rates priced to rise, but economists split
The disagreement reflects conflicting signals in the real economy. The war in the Middle East has left the Strait of Hormuz effectively blocked, with Brent crude hovering around US$100 a barrel and “ready to take off or plummet depending on the next headline.” Higher fuel and freight costs are feeding into household budgets and business margins.
At the same time, domestic data point to spare capacity. New Zealand’s unemployment rate has dipped to about 5.3%, but the underutilisation rate is still near 13% and wage growth sits close to 2% a year, well below earlier peaks.
Kiwibank characterises the stand‑off bluntly: “The fuel (supply) crisis is pushing prices up, and the weak economy (demand) is pushing prices down.” The bank sees “demand destruction” as firms postpone expansions and households delay major spending, and it expects the economy likely contracted in Q2.
Upcoming releases – including the RBNZ Survey of Expectations, selected price indexes and the 27 May Monetary Policy Statement – will be key tests of whether current market pricing for multiple hikes holds.
Rates priced to rise, but economists split
For now, REINZ figures and bank research suggest only modest house‑price moves, but sales volumes remain subdued. Ample supply, higher mortgage and fuel costs, and softer confidence are weighing on demand, even as stronger net migration provides some offset.
Economists generally expect a slight decline in house prices over 2026, with weaker turnover and tighter borrowing conditions likely to persist while New Zealand waits for greater clarity on both the oil shock and RBNZ’s next move.
For more insights, read the Westpac, ASB, and Kiwibank reports.
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