Market still pricing hikes, but Kiwibank says ‘wait’
Kiwibank economists argue the Reserve Bank (RBNZ) should resist market pressure for rapid tightening, warning that the full impact of the Middle East conflict on the economy is still to come.
Despite wholesale markets still pricing multiple official cash rate (OCR) increases over the next year, Kiwibank’s Jarrod Kerr and Alexandra Turcu (pictured left to right) believe the central bank needs to take a longer view as higher fuel and shipping costs work their way through demand, employment and inflation. As Kerr puts it, “We need time to assess the damage, and that’s why we’re in the no-hike camp.”
That cautious stance echoes the Reserve Bank’s own recent messaging. RBNZ governor Anna Breman has signalled no rush to lift the OCR, warning that a temporary price spike must not become “enduring inflationary pressures”. By contrast, ASB’s latest outlook pencils in 25bp OCR hikes from July to about 3.25% by year‑end, while Westpac and ANZ also foresee renewed tightening.
Households and businesses under mounting cost pressure
For advisers, the more immediate story is the squeeze on clients’ cashflows. Kiwibank observes that “Kiwi households are cutting back on spending where they can,” as essentials such as food, power, rates, insurance, and now petrol all climb.
On the business side, “Kiwi businesses are also feeling the cost crunch.” Higher input costs and weaker demand are prompting firms to delay hiring, expansion, and wage rises. Kiwibank expects this contraction in activity to feed through to the labour market over the next 6–12 months, keeping unemployment and underutilisation elevated and dampening wage growth.
Labour data unlikely to shift RBNZ path
Kiwibank does not see this week’s labour market figures as a decisive trigger for policy change. The team writes, “We don’t expect the Q1 labour market data to really nudge expectations for interest rate hikes much in either direction.”
ASB’s forecasts point in a similar direction, with Q1 employment growth of about 0.1% and the unemployment rate edging up to around 5.5% as stronger migration-driven labour supply outstrips hiring.
For mortgage advisers, that suggests a “higher for longer” rates backdrop rather than an abrupt policy pivot. The key risk is less about an immediate spike in the OCR, and more about how prolonged cost-of-living and business strain will affect credit demand, arrears risks and clients’ ability to refinance or trade up over the year ahead.
See the Kiwibank report here for more insights.
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