Westpac NZ cuts its rate forecast — and the July hold looks increasingly certain
Westpac NZ's economics team has revised down its OCR projections in response to the faster-than-expected resolution of the Middle East conflict and the sharp fall in global energy prices that has followed.
Chief economist Kelly Eckhold (pictured) and the Westpac NZ economics team reduced their forecast peak for the OCR from 4.25% to 4%, cutting one expected hike from their 2026 profile. The team now anticipates the RBNZ will hold the OCR at 2.25% at the 8 July meeting, begin lifting at the September Monetary Policy Statement, and move once more — most likely in December — before the year is out.
Why the outlook has shifted
The trigger for the forecast change is the unexpectedly rapid improvement in Persian Gulf shipping conditions, which has driven oil and refined fuel prices well below the levels the RBNZ assumed in its May forecasts. Brent crude is currently trading around US$73 per barrel, close to pre-conflict levels, while diesel prices at the pump have fallen more than $1 per litre from their March peak.
Westpac now expects headline inflation to peak at 4% in the June quarter — down from the 4.5% peak assumed in May — and ending 2026 at 3.5%, well below the RBNZ's own year-end projection of 4.1%. GDP growth for 2026 has also been revised up to 2% from 1.5%.
What it means for the July decision
On the 8 July meeting, Westpac is unequivocal. The bulletin states the team "affirm our view that the RBNZ will hold the OCR at 2.25% at the 8 July meeting" and goes further, noting they "do not rule out the possibility that this decision is reached by consensus and so without a vote" — a signal that the hawkish bloc on the Monetary Policy Committee may have lost the appetite for pre-emptive action.
Not all major bank economists agree. As of this week, ASB economist Wesley Tanuvasa still holds the July hike call, though he concedes "this view is held with less conviction" given geopolitical progress.
The housing market stands to benefit from the revised outlook. Westpac has upgraded its 2026 house price projection from a modest 1% fall to growth of 0.6%, with the team noting that "weaker expectations for RBNZ OCR hikes have translated through to lower mortgage rates in recent weeks which should also assist sentiment." Regional markets are expected to outperform major North Island urban centres as the economic recovery takes hold through 2027.
The rate backdrop had already been tightening ahead of today's bulletin — standard residential mortgage rates rose across most fixed terms in May, with higher wholesale rates flowing through to higher fixed-term mortgage rates. Whether Westpac's revised outlook changes that trajectory will depend on how wholesale markets respond in coming weeks.
The team is clear that two-sided risks remain, and a hotter-than-expected June quarter CPI could still revive the case for three hikes in 2026.
Read the full Westpac report for more insights.
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