Bank economists agree: more OCR hikes are coming before year end
With the Reserve Bank's tightening cycle still firmly in motion, mortgage advisers fielding client questions this week have a fairly consistent answer to work with: for most borrowers, locking in a fixed rate still makes more sense than riding it out on floating.
Fixed rates hold their appeal despite climbing above 5%
Kiwibank's economics team noted that fixed-term mortgage rates between two and five years now sit above 5%, following the RBNZ's move to lift the OCR to 2.5% at its July meeting. Even so, the bank argues the case for fixing hasn't weakened.
"We're expecting 25bp hikes at the RBNZ's September and December meetings, with the OCR expected to continue rising next year," Kiwibank said, adding that "fixing for one of these longer periods still appears attractive as it would insulate borrowers from a trend higher in the OCR over the next couple of years."
That view is echoed across the sector. ASB expects the RBNZ "to affirm its inflation credentials with a steady pace of 25bp hikes and a 3.25% OCR by year end," while Westpac's Kelly Eckhold argues the central bank will ultimately need to go further still, noting that "raising the OCR to restrictive levels is a credible approach" if inflation is to be brought back to target. Westpac has pencilled in an OCR peak of 4% sometime in 2027.
A soft labour market isn't enough to change the outlook
The case for further hikes comes despite genuine cracks emerging in the labour market.
Unemployment climbed to 5.6% in the June quarter, an 11-year high, and underutilisation hit a 12-year peak of 13.8%. But wage growth has stayed contained at 2% annually, giving the RBNZ room to keep tightening without immediate fear of a wage-price spiral — which is precisely why economists don't expect the softer jobs data to derail the current hiking path.
For borrowers and property investors watching from the sidelines, that combination — rising rates paired with a softening housing market — is shaping affordability conversations for the rest of the year. REINZ data already shows house prices declining through June, with ample listings giving buyers more time to weigh borrowing costs against softening prices, a dynamic likely to continue while the RBNZ keeps its foot on the brake.
For advisers, the practical takeaway from this week's data is straightforward: with rates still headed higher and no peak in sight before 2027 at the earliest, clients weighing fixed versus floating options have good reason to lock in sooner rather than later.
For more insights, read the Westpac, ASB, and Kiwibank weekly economic updates.
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