ASB has dropped its July hike call, but warns NZ mortgage rates are still heading to 5.3% by mid-2027
The case for a Reserve Bank of New Zealand official cash rate (OCR) hold on 8 July has strengthened. That is the view of ASB senior economist Mark Smith and chief economist Nick Tuffley, who revised their call in an economic note published today.
The bank had previously expected a 25-basis-point hike at the July Monetary Policy Review. It now expects the Reserve Bank of New Zealand to keep the OCR at 2.25%.
The decision is expected to be split rather than unanimous. Internal Monetary Policy Committee members hold the balance of power via the governor's casting vote.
The ASB Economics team noted they have not seen sufficient evidence to support a hike. According to the note, those members want to wait for "more confirmation of potential medium-term inflation impacts" before acting.
US-Iran deal changes the inflation maths
The driver behind the revised RBNZ OCR hold in July 2026 call is the US-Iran Memorandum of Understanding. It has lowered the risk of oil cost shocks flowing into broader price and wage settings in New Zealand.
Oil prices have fallen sharply from the RBNZ's May Monetary Policy Statement projections. The May MPS assumed Dubai oil prices closer to US$100 per barrel for the rest of 2026. Spot prices are now below US$70 per barrel, with futures just above US$70 by year end.
ASB is taking a cautious line, assuming around US$80 per barrel over the rest of 2026. On that assumption, lower fuel costs reduce near-term inflation pressure and remove the urgency to act in July.
The bank also points to the data calendar. Only eight weeks separate the 8 July OCR decision from the September Monetary Policy Statement. Q2 CPI data, due 21 July, will provide clearer evidence of whether broadening inflation is emerging. Labour market figures follow on 5 August.
Westpac NZ reached a similar conclusion on the July outlook. The bank cut one expected hike from its 2026 forecast profile, citing improved Persian Gulf shipping conditions as the trigger.
What the RBNZ OCR hold means for NZ mortgage rates
For mortgage advisers, the more consequential number sits further out. ASB still expects the tightening cycle to begin in September and run through to early 2027.
The bank has pencilled in consecutive 25-basis-point hikes from September, with the OCR ending 2026 at 3.0% and peaking at 3.25% by early 2027.
The effect on home loan costs is direct. ASB estimates the effective mortgage interest rate will rise to 5.3% by mid-2027. That is up from a current trough of around 4.85%.
That trajectory matters for advisers managing client refixes. As noted in NZA's coverage of rising NZ mortgage rates and the looming OCR hike cycle, fixed-term rates have been moving higher since January. Most fixed terms reached their low point in late 2025 and have since climbed.
The housing market is giving advisers little help. House prices have tracked broadly sideways in recent months, with significant regional variation. The inventory of unsold existing dwellings remains high. Dwelling construction is running above household formation rates.
ASB acknowledges two-sided risks remain. A failure to rebound from US-Iran disruptions, or a lower neutral OCR, could result in a more gradual tightening pace. Equally, more persistent inflation could require the OCR to be pushed above 3.25%.
The September decision is now the one to watch
With July looking increasingly settled, the September Monetary Policy Statement becomes the first decision of real consequence.
The 27 May Monetary Policy Committee vote split 3-3 between holding and hiking. As covered in NZA's analysis of the May split vote and its implications, the committee is not acting pre-emptively. ASB judges September is the earliest the internal members can be moved.
The bank's rate path beyond July points clearly upward. Effective borrowing costs for clients are forecast to continue rising through 2027.
The RBNZ OCR page updates at 2pm on 8 July.
