ANZ warns against over-tightening as record oil shock tests the RBNZ
Mortgage rates look set to keep rising as the Reserve Bank (RBNZ) responds to a record oil shock, but economists disagree on how far the official cash rate (OCR) needs to go.
Infometrics’ latest economic forecasts expect the RBNZ to lift the OCR to 3.25% by the end of 2026 and 3.75% by April 2027. ANZ’s NZ Insight report on oil shocks, meanwhile, expects the RBNZ to be reluctant to push the OCR beyond its medium-term neutral range of 2.5–3.5% without clear evidence that it is needed.
Consistent with that, ANZ’s 16 October Data Wrap forecasts the OCR reaching 3.5% by March, a quarter point below Infometrics, and says the weaker NZD and higher oil prices keep a hike at the 28 October review firmly on the table.
For advisers, the gap between those views matters, because every additional hike flows through to mortgage rates and borrowing capacity for first-home buyers and property investors. Fixed mortgage rates for two to five years already sit above 5%. Bank estimates put market odds of an October hike at around 80% to more than 85%, and BNZ tips a 3.75% peak, matching Infometrics.
However, BNZ argues wholesale markets have largely priced in the expected hikes, so it expects the standard two-year fixed rate to rise well short of the 100 basis points of OCR increases it forecasts. Floating rates, it said, are the exception.
A historic supply shock
ANZ’s oil shock analysis found that the supply disruption in March 2026 was the largest in a data series stretching back to 1975.
In past episodes, adverse supply shocks lifted headline inflation for a short period but had no reliable spillover into core inflation or inflation expectations, and no systematic change in the OCR. However, ANZ cautioned that past episodes may say little about a shock of this size.
The bigger risk, its economists argued, may come later. A global slowdown in 2027 could become a strong disinflationary force. Leaning too hard against the first wave of inflation could mean “monetary conditions end up too tight for economic conditions further down the track”, ANZ said.
Recovery slower than hoped
Infometrics also sees the economy growing, though only modestly. Growth, last measured at 1.7% a year, is forecast to stay above 1.5% until mid-2027, then reach 2.2% by the end of 2027.
Chief forecaster Gareth Kiernan (pictured) said rising borrowing costs were already being felt.
“Higher interest rates are also weighing on spending growth and the housing market,” Kiernan said.
He added that uncertainty was being amplified by an unusually tight election race, possibly the tightest in more than 30 years.
“It’s just a recovery that is a whole lot slower than we’d hoped for by now,” he said.
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