Kiwibank Warns Against Rate Hikes as RBNZ Prepares to Raise Interest Rates

The Reserve Bank of New Zealand (RBNZ) is expected to raise interest rates next week, but Kiwibank's chief economist, Jarrod Kerr, is urging caution.

Kerr says that with inflation above target and economic activity expected to strengthen, it's too early for the RBNZ to hike. He argues that a 0.25% OCR increase would remove stimulatory support from the economy, which needs encouragement to invest and hire.

Economists and financial markets believe another 0.25% OCR hike to 2.75% is a done deal, but Kiwibank is the only voice warning against further rate hikes until after the election. Kerr says uncertainty kills growth, citing the war in the Middle East as a major concern.

ASB senior economist Mark Smith agrees with the majority view, pointing to three key arguments supporting a 0.25% hike: a high inflation starting point, a low OCR starting point, and acting to avoid unnecessary volatility. He expects the OCR to end this year at 3.25%, but acknowledges two-sided risks.