Markets are pricing in multiple OCR increases this year even as the RBNZ is widely tipped to hold
Inflation expectations among institutional investors have jumped sharply since February — and that shift, more than anything else, explains why the Reserve Bank's May policy decision carries more weight than a simple hold would suggest.
A Westpac NZ survey of 139 clients, conducted ahead of this week's Monetary Policy Statement, found a strong majority (83%) expect the OCR to remain unchanged.
Michael Gordon, senior economist at Westpac NZ, said the results showed "most expect the RBNZ to remain on hold this week, but it could be a close-run vote and the pressure for rate hikes this year is building."
The April meeting record noted that "some members" argued more strongly for an early policy response, and markets are watching closely for any shift in the committee's composition of views. The decision is also notable as the first meeting under the Monetary Policy Committee's revised charter, where votes will now be attributed rather than anonymous if consensus cannot be reached.
Rate hikes are coming — the question is when
Looking past this week, the survey paints a clear directional picture. Most clients expect the RBNZ to signal two or three OCR increases by year-end — a meaningful hawkish shift from the February Monetary Policy Statement, which projected a single 25 basis point hike late in 2026.
Westpac NZ chief economist Kelly Eckhold noted the significance: "An interesting outcome is the shift in inflation expectations two years ahead. These are marching higher and firmly point to the top of the 1–3% range. Hence the perceived need for OCR hikes."
NZ-based clients generally expect the OCR to land between 2.75% and 3.00% by year-end. Offshore clients were more divided, with around a quarter expecting no hikes at all this year — possibly reflecting greater sensitivity to global growth risks from the Middle East conflict.
Inflation the key driver, not just fuel prices
The most striking finding is the jump in longer-term inflation expectations.
Nearly half of respondents see inflation at around 3% or higher two years from now — a substantial increase since February. Crucially, the survey suggests this isn't simply a mechanical response to elevated fuel prices, which most clients expect to moderate over the year ahead. The concern is that underlying inflation pressures will persist after the oil price spike fades.
Respondents were clear on what would push the RBNZ to move faster: rising inflation expectations and sticky non-tradables inflation topped the list, cited by 57% and 53% of respondents respectively, while domestic growth weakness was the most commonly cited brake, flagged by 71%.
What it means for mortgage rates
For borrowers and the advisers who serve them, the direction of travel is clear: borrowing conditions are likely to tighten further before they ease.
The survey also found the RBA is expected to tighten more aggressively than the RBNZ over the rest of 2026, despite having already delivered three 25-basis-point cash rate hikes this year — a reminder that rate pressure is a trans-Tasman story as much as a local one.
For the full Westpac New Zealand RBNZ client pulse survey report, follow this link.
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