Every one of the country’s five largest bank economics teams expects the Reserve Bank to lift the official cash rate again on Wednesday, taking it from 2.50 percent to 2.75 percent and confirming that the long era of falling borrowing costs is over.
The September Monetary Policy Statement is due on 2 September, and as interest.co.nz reported on Sunday, economists at ANZ, ASB, BNZ, Westpac and Kiwibank have all landed on the same forecast of a 25 basis point rise. That level of agreement is rare. Bank forecasters usually split into camps ahead of a cash rate call, and the fact that none of them is picking a hold says a good deal about how firmly the Reserve Bank has already signalled its intentions.
The starting point was 8 July, when the Monetary Policy Committee raised the cash rate for the first time in more than three years. In that Monetary Policy Review the committee said that “with inflation still above target and economic activity expected to strengthen, some further reduction in monetary stimulus is likely to be required to return inflation to the 2 percent target mid-point”. Economists have read that sentence as a promise rather than a possibility.
Kiwibank chief economist Jarrod Kerr described Wednesday’s expected move as the “second in a likely 3-step move to 3%”, and said the Reserve Bank wants “to remove stimulatory settings to ensure inflation settles back down near 2%”. He also made clear his team is not convinced the tightening is warranted. “We may disagree with the need to hike, but we agree that this is what the RBNZ have signalled,” Kerr said.
Where the banks part company is on how far the tightening runs. Westpac chief economist Kelly Eckhold said the “strategy to return the OCR to around 3% by year-end seems clear and uncontroversial”, but warned against assuming the job continues automatically after that. “The economic recovery remains fragile and significant risks abound. Care should be taken to not take the recovery for granted, especially while the improvement in the labour market remains embryonic,” he said. ASB senior economist Mark Smith is picking rises in September, October and December, telling interest.co.nz his team expects “the OCR to end 2026 at 3.25% as remaining monetary stimulus is withdrawn”.
BNZ head of research Stephen Toplis has gone considerably further than the rest. “What we think the bank will publish and what we think will eventually be the case are slightly different. It is our view the cash rate will rise 25 basis points at each meeting until it reaches 4.0% in May 2027,” he said. If that turns out to be right, borrowers refixing in a year’s time would be doing so against a cash rate 150 basis points above where it sits today.
What makes this tightening cycle unusual is what is driving it. Annual inflation reached 4.1 percent in the June 2026 quarter, the highest reading since late 2023 and well outside the Reserve Bank’s 1 to 3 percent band. But the bulk of that came from the fuel pumps. Petrol rose 27.5 percent over the year and diesel rose 71 percent, both consequences of the disruption to the Strait of Hormuz. Stats NZ calculated that if petrol and diesel prices had not moved at all, annual inflation would have been 2.9 percent, comfortably inside the target band.
The Reserve Bank itself acknowledged in July that the oil shock has partly unwound, noting that following the partial reopening of the Strait of Hormuz, global oil prices had fallen markedly and near-term inflation pressures had eased. Its own July projection was that inflation had peaked at 3.9 percent in the June quarter and would fall to 3.3 percent in the September quarter. The actual June figure came in above that forecast, which is one reason the committee is expected to keep moving rather than wait.
The awkward part is the labour market. Unemployment hit 5.6 percent in the June quarter, the highest in more than a decade, with 166,500 people out of work and the underutilisation rate at 13.8 percent. Youth unemployment for those aged 15 to 19 climbed above 25 percent. Raising interest rates into a jobless rate at an 11 year high is not a comfortable position for any central bank, and it explains the caution running through the economists’ commentary even as they all pick the same number.
For households, the effects have already arrived. Sharpest one year fixed home loan rates at the major banks now sit at 4.95 to 4.99 percent, up from around 4.65 percent when the July increase landed. Two year rates at the big four have moved above 5.39 percent. Anyone whose fixed term rolls over between now and Christmas is almost certainly refixing at a higher number than the one they have been paying, and that is before Wednesday’s decision is priced in.
There is a political dimension too. The general election is set for 7 November, which puts the Reserve Bank’s October review inside the campaign. ANZ chief economist Sharon Zollner raised the possibility that the committee might prefer to make an October rise close to certain in order to reduce noise around its communications ahead of polling day. “We expect the RBNZ to get on with the job at this meeting and the next one, but in a world of such extreme uncertainty, flexibility is very valuable,” she said.
The statement lands at 2pm on Wednesday and will carry a fresh set of projections alongside the rate decision. The number itself looks settled. The forecast track for 2027, and how hard the committee leans on October, is where the real information will be.
You can follow every cash rate decision since the 1999 launch of the official cash rate, along with the current setting and the dates of upcoming reviews, in our OCR tracker.
Are you due to refix your mortgage this year, and how much of a difference will another rise make to your household budget? Tell us in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
Leave a Reply