Economists split on how high the official cash rate will peak
New Zealand’s major bank economists still expect the official cash rate (OCR) to rise from December, despite the Reserve Bank of New Zealand’s (RBNZ) surprise decision to hold it at 2.75% on 28 October 2026. They’re divided on how far it will climb, a key question for mortgage advisers weighing fixed-rate terms for clients.
Markets had priced in a near-certain 25-basis-point increase before the Monetary Policy Committee voted 4–3 to hold. Westpac described the outcome as the biggest shock to markets outside a crisis period in more than 20 years.
The banks differed on the decision itself. BNZ head of research Stephen Toplis said the Bank “missed a free hit” by not moving earlier, adding to interest rate and currency volatility.
Westpac chief economist Kelly Eckhold was more sympathetic, arguing a measured approach could prove sound risk management. “Pausing does not need to imply stopping or reversing,” he wrote.
Where the banks see the OCR peaking
ANZ and ASB both forecast three 25-basis-point hikes, in December, February, and March, taking the OCR to 3.5%. BNZ remains relatively confident of a December move and sees a 3.75% peak by mid-2027. Westpac has the highest forecast peak, with increases at the same three meetings followed by slower rises to 4% from September 2027.
Kiwibank expects a hike to 3% by year end but questioned how much tightening markets are still pricing. “A circa 4% OCR just doesn’t seem probable based on the current messaging,” its economists wrote.
Governor Anna Breman has said a December hike is highly likely, and economists still tip a December move. BNZ noted, however, that committee member Carl Hansen told The Post he saw it as a 50/50 call.
Behind those forecasts is the inflation outlook, after core inflation measures firmed in the September quarter. The RBNZ expects annual inflation to rise to 4.4% in the December quarter, largely because of fuel prices, with bank forecasts ranging from 4.3% (Westpac) to 4.6% (ASB).
Swap rates ease as markets reprice
Wholesale rates, which strongly influence fixed mortgage pricing, fell after the decision. ASB data shows the two-year swap rate at 3.90%, down from 4.05% a week earlier. ANZ noted on 30 October that it had peaked at 4.13% ten days earlier.
Markets now price around an 80% chance of a December hike, according to BNZ, and around 85 basis points of hikes in 2027, according to ASB. BNZ senior interest rate strategist Stuart Ritson put fair value for the two-year swap at 3.80%, or nearer 3.70% if the RBNZ alternates hikes and pauses.
Labour data and the election come next
Wednesday’s September quarter labour market data is the next test of the rate outlook. Forecasts for the unemployment rate range from 5.4% (Kiwibank) to 5.6% (ANZ and BNZ), with ASB and Westpac at 5.5%. BNZ sees annual employment growth reaching 1.6%, which would be the strongest annual growth since December 2023.
Wage growth looks set to stay modest. ASB and the RBNZ both forecast private-sector labour cost growth of 2.1%, which ASB said is near a four-year low. BNZ forecasts 2.2% and sees wage growth pushing higher through 2027. ASB has also raised its estimate of the unemployment rate consistent with stable inflation, suggesting current joblessness may do less to curb prices than previously thought.
The housing backdrop remains subdued. ANZ-Roy Morgan consumer confidence slipped to 96.2 in October, while house price expectations fell to 2%, their lowest in more than three years.
The 7 November general election adds further uncertainty. BNZ said the make-up of parliament may not be known until the final count on 27 November. It said investor feedback suggests a right-leaning government should not change market pricing, while a left-leaning one may cause a slightly steeper yield curve. Westpac noted a close race could affect the RBNZ’s mandate.
For more insights, read the Westpac, ASB, ANZ, Kiwibank, and BNZ reports.
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