Bank expects the official cash rate to peak at 3.5% by March
ANZ expects the Reserve Bank to raise the official cash rate (OCR) three times over the next five months, even as house prices continue to fall and the domestic economy stays weak.
In its November New Zealand Economic Outlook, the bank forecasts 25 basis point hikes in December, February and March. That would take the OCR from 2.75% to 3.5%, the top of the RBNZ’s estimated range for a neutral rate. ANZ had expected a hike in October, but the RBNZ unexpectedly held. The Monetary Policy Committee split 4–3 in favour of holding, while signalling that further tightening was likely.
ANZ economists said rising core inflation, a weak New Zealand dollar and signs that the neutral rate may be drifting higher all point to more tightening. However, they acknowledged the outlook is highly uncertain.
“In short, 3.5% is our stake in the ground, but the distribution of risks around it remains wide,” they said.
Housing under pressure
The property market remains under pressure, with the REINZ house price index falling for a fourth consecutive month in September.
“Higher mortgage rates are the main culprit, but election uncertainty has likely been adding to the caution,” the economists said.
ANZ expects house prices to keep easing until mid-2027. It forecasts prices to end 2026 about 2% lower and fall a further 1% over 2027, before stabilising.
Wholesale rates near their peak
ANZ expects 90-day bill rates to keep rising alongside the OCR. It expects the two-year swap rate, currently around 3.75%, to rise slightly before settling at about 3.85%, well below September’s 4.15% high, which ANZ believes was likely the peak.
Other banks’ forecasts differ. ASB also expects a 3.5% peak by March 2027, BNZ expects 3.75% in autumn, and Westpac expects 4% in the second half of 2027.
Inflation the deciding factor
Annual consumer price inflation eased to 3.7% in the September quarter, but ANZ expects it to rise again in the December quarter as higher fuel prices and the weak currency push up import costs. It forecasts annual inflation of 4.5% by the end of 2026, before it eases back towards 2% by late 2027.
Unemployment rose to 5.7% in the September quarter. ANZ expects it to stay there through the December quarter before gradually easing to around 5% in 2028.
The economists said inflation will decide how far the RBNZ goes, and “on that front, things are going the wrong way.”
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