Independent economists are split on timing, but unanimous that the OCR must rise
A majority of economists on the NZIER Monetary Policy Shadow Board have recommended the Reserve Bank keep the OCR at 2.25% at Wednesday's Monetary Policy Statement — but the split within the group signals just how close the debate has become, and how quickly the rate environment could shift for New Zealand mortgage holders.
The Shadow Board, which publishes independent views ahead of each RBNZ decision, saw the majority of its eight members back a hold in May. They cited subdued GDP growth, slack in the broader economy, and ongoing uncertainty from the US-Israel war with Iran as reasons to wait for clearer data before tightening. But three members argued the case for hiking now, pointing to the prolonged period of near-zero real interest rates and the continued lift in inflation and inflation expectations.
The divide between the two camps is sharp. Victoria University professor Arthur Grimes argued a gradual start to tightening was already overdue:
"The real OCR has been zero or negative for a prolonged period, contributing to inflationary pressures. It needs to rise over the next 12 months. While the current situation is highly uncertain, a (gradual) start to the tightening cycle should begin at this announcement," Grimes said.
University of Otago associate professor Dennis Wesselbaum was equally pointed, describing the Middle East situation as characterised more by ambiguity than genuine uncertainty, and warning that this was likely the last meeting at which holding could be justified:
"With the effects of previous rate cuts still working through the economy, this is likely the last meeting at which holding the OCR unchanged can be justified," Wesselbaum said.
The case for patience — and its limits
Not all Shadow Board members read the situation the same way.
BusinessNZ economist John Pask noted that while inflation and expectations have moved up in light of the Iran conflict, both business and consumer confidence have taken a sharp fall — and the economy still has spare capacity that argues against premature tightening.
Sharesies CEO Brooke Roberts made a similar point, observing that current inflation pressure is coming from volatile oil and electricity prices rather than domestic demand, with unemployment rising toward 5.6% in the months ahead and GDP growth at just 0.2% last quarter.
Kiwibank chief economist Jarrod Kerr, also on the Shadow Board, went further. In Kiwibank's weekly note, he argued that hiking into a supply-shock-driven inflation environment risks compounding the damage rather than containing it:
"Hiking early will only kick the economy while it's down. The fear that this will be another COVID situation is unwarranted," Kerr said, adding that Kiwibank sees no need for rate hikes this year on current data.
Where rates are heading
Whatever their view on May, all Shadow Board members agree that the OCR needs to be higher in 12 months' time. The majority placed their preferred OCR in a range of 2.75% to 3.75% by May 2027 — a wide band that captures the depth of uncertainty about how quickly inflation will prove persistent versus transitory.
The major banks broadly align with the upper end of that range, though they differ on timing and pace.
ASB and ANZ both favour a July start — ANZ's Sharon Zollner expects three consecutive 25bp hikes in July, September, and October taking the OCR to 3%, while ASB forecasts the OCR reaching 3.25% by December. BNZ's Stephen Toplis, who also sits on the Shadow Board, argues the RBNZ should be moving to neutral as soon as possible and expects hikes to begin in September, with the OCR peaking around 3.25% in early 2027. Westpac's Kelly Eckhold, also on the Shadow Board, went further personally, arguing in his participant comments that an increase at this meeting would be a down payment on returning the OCR to more neutral levels in the 3–3.5% range.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
