ANZ now tips the OCR to reach 3.5% as BNZ lifts most New Zealand home loan rates

ANZ, New Zealand’s biggest bank, now expects the Reserve Bank to lift the Official Cash Rate three more times, taking it to 3.5 percent by March next year. The call, published by ANZ’s economists on Monday 21 September, came a day before BNZ raised most of its fixed home loan rates this morning.

Until now ANZ had picked just one more rise, in October, to 3 percent. In a research note led by chief economist Sharon Zollner, the bank now forecasts a quarter-point rise at the 28 October review, a pause in December, and further quarter-point rises in February and March 2027. The rate would then stay at 3.5 percent through to the end of 2027, according to ANZ’s forecast table.

The OCR sits at 2.75 percent after the Reserve Bank raised it by a quarter point on 8 July and again on 2 September. You can follow every decision and the next announcement date on our OCR tracker.

ANZ gives three reasons for the change. The first is oil. The bank says the spot price of Dubai crude is now more than 40 percent above the US$83.70 a barrel the Reserve Bank assumed for the December quarter, and the gap between crude and refined fuel has widened, which means diesel in particular could cost far more than the crude price alone suggests. Petrol was already at $3.25 a litre last week, and ANZ warns the fuel shock could now spread into the wider basket of prices that make up the Consumers Price Index.

The second reason is the dollar. The New Zealand dollar has fallen out of favour as investors around the world have become more cautious, and ANZ says the trade-weighted index is 3.3 percent below where the Reserve Bank expected it to be by the end of the year. “This will raise the price of not only fuel but all imports,” the ANZ economists write.

The third is that the economy has held up better than the Reserve Bank expected. Stats NZ figures released last Thursday showed gross domestic product grew 0.2 percent in the June quarter, when the Reserve Bank had forecast no growth. With an upward revision to the March quarter, annual growth reached 2.6 percent against the central bank’s expectation of 2.2 percent. ANZ says that means the oil shock has so far done less to cool inflation than the Reserve Bank assumed.

ANZ is careful to say the forecast is a balance of risks rather than a confident prediction. “The higher oil price means both upside risks to inflation and downside risks to growth have intensified,” the note says. It lists several things that could stop the OCR short of 3.5 percent, including a weak housing market, rising global bond yields and a wave of rate rises overseas. On housing, it says “the combination of higher rates, policy uncertainty, rising user costs (insurance and rates) are likely to keep the market flat for some time”.

Financial markets are already pricing in more than ANZ is forecasting. “The market is now pricing a peak OCR of around 4%, and swap yields have risen markedly,” the note says. ANZ expects the two-year swap rate, which drives many fixed mortgage rates, to hold around 4 percent rather than fall back.

ANZ is not the most hawkish of the big banks. After last week’s GDP figures, BNZ head of research Stephen Toplis said things had changed dramatically and that “we now think the Reserve Bank has no choice but to raise the cash rate 25 basis points in October”, interest.co.nz reported on 17 September. BNZ now projects a quarter-point rise at every meeting until the OCR reaches 3.75 percent. ASB said last week it was sticking with its call of 3.25 percent by the end of the year.

Kiwibank takes the opposite view. Its economists said on Monday that calls for an October rise were premature, and argued the economy was still fragile. “But when the economy is still in embers, now is not the time to be dousing it with water,” they said, as quoted by interest.co.nz.

For borrowers, the shift in expectations is already showing up in bank rate cards. BNZ this morning raised its six-month fixed rate by 0.10 of a percentage point to 4.89 percent and its one-year rate by 0.20 to 5.19 percent, according to interest.co.nz’s rate table. Its three-year rate rose 0.10 to 5.59 percent, its four-year rate rose 0.20 to 5.65 percent, and its five-year rate rose 0.26 to 5.75 percent.

BNZ went the other way on two terms. It held its 18-month rate at 5.29 percent and cut its two-year rate by 0.10 to 5.35 percent, which interest.co.nz described as a move to compete for buyers in the spring property season. Westpac and TSB changed their rates last week, also mostly upwards but with some cuts, and TSB’s one-year rate is now below all the main banks. Some smaller lenders, including China Construction Bank, still advertise one-year rates under 4.5 percent.

For households on floating rates, the pass-through tends to be quick. Financial Markets Authority data published this month showed floating mortgage rates took the full OCR rises but only part of the cuts in past cycles, so a further 0.75 of a percentage point on the OCR would likely flow straight to those borrowers.

The rate outlook also lands in the middle of an election campaign, with the Reserve Bank’s 28 October decision falling just 10 days before voters go to the polls. Before then come two releases that could shift the picture, the New Zealand Institute of Economic Research’s Quarterly Survey of Business Opinion on 6 October and Stats NZ’s September quarter inflation figures on 22 October. Annual inflation was 4.1 percent in the June quarter, well above the Reserve Bank’s target range of 1 to 3 percent.

ANZ admits the timing of its forecast is “highly uncertain” and says the Reserve Bank may prefer to reach 3 percent quickly, then wait and see. But the direction of travel across most of the big banks is now the same, and fixed-rate borrowers coming off cheaper deals this spring are likely to be refixing at higher rates than they hoped a few months ago.

Is your fixed term coming up for renewal, and are you going short or locking in for longer? 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 🙂