Bank economists temper December hike calls as unemployment hits 5.7%
A December official cash rate (OCR) hike by the Reserve Bank of New Zealand (RBNZ) is looking less certain after a surprisingly soft labour market report, and an unresolved general election adds a further layer of doubt over the outlook for mortgage rates.
The unemployment rate rose from 5.6% to 5.7% in the September quarter, an 11-year high, and employment fell 0.1%. Long-term joblessness is also climbing, with Kiwibank’s economists finding that 21.5% of unemployed New Zealanders had been out of work for more than a year, the highest share since the mid-1990s.
“There is clearly still a lot of slack in the market and that is keeping a lid on wages,” said ASB acting chief economist Kim Mundy.
Banks temper their December calls
Westpac, Kiwibank, and ASB all still expect the RBNZ to lift the OCR from 2.75% to 3% on 9 December, but with less conviction. Westpac economists said the data reinforced their view that “a rate hike at the RBNZ’s December meeting is far from a done deal” and flagged the risk of a more gradual tightening path in 2027.
Kiwibank struck a similar note. “We still believe a hike in December is more likely than not, but we are watching the high-frequency data closely,” its economists wrote.
Views on the eventual peak differ. ASB expects the OCR to top out at 3.5% by March 2027, while Westpac sees it reaching 4% in the second half of that year.
Markets have already adjusted. Pricing reported by Westpac and BNZ implies a 60 to 65% chance of a rate rise at the 9 December decision, and the two-year swap rate has fallen to around 3.7%. That’s roughly 40 basis points below its level before the RBNZ’s split decision to hold in October. The RBNZ’s inflation expectations surveys, due from 17 November, are the next key test.
What it means for borrowers
Westpac noted that fixed mortgage rates for terms of two to five years now sit above 5%, but it still sees value in longer terms for borrowers wanting protection from further OCR rises. For first-home buyers and property investors weighing fixed terms, the recent fall in swap rates is worth watching.
Housing demand remains subdued. ASB expects house prices to fall 1 to 2% over 2026, with housing inventory at its highest level since March 2015.
Election adds another layer of uncertainty
Preliminary results give the centre-right bloc 67 seats in a 131-seat parliament, one more than the 66 needed for a majority. Around 400,000 special votes are still to be counted, with final results due on 27 November.
Westpac said a centre-left government would likely restore the RBNZ’s dual mandate, while a centre-right government would not. ANZ economists said that, for now, neither major party’s fiscal plan would materially change their economic or OCR outlook.
Read the full analysis from the bank economists: ASB’s Economic Weekly, Westpac’s latest Weekly Economic Commentary, Westpac’s 2026 election preliminary results bulletin, Kiwibank’s First View weekly economic note, BNZ’s Markets Outlook, and ANZ’s latest economic and markets research.
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