Kiwibank Warns RBNZ Against Further Rate Hikes Amid Economic Uncertainty

Kiwibank is advising the Reserve Bank of New Zealand (RBNZ) to hold off on further interest rate hikes, despite predicting another increase next week. The RBNZ raised the official cash rate from 2.25% to 2.50% in July, and Kiwibank expects it to rise again to 2.75% next Wednesday.

Kiwibank economists argue that interest rates should remain stimulatory to encourage investment and hiring, as the economy needs support and inflation pressures are expected to ease soon.

The economists point to rising unemployment, subdued wage growth of around 2%, and weakness in the housing market as signs that further rate hikes are not yet needed. They also mention uncertainty from the war in the Middle East as a contributing factor, causing businesses to delay or cancel projects and households to pull back spending.

Westpac, another major bank, agrees with Kiwibank's prediction of another interest rate hike next week, taking the OCR to 3% by the end of 2026. However, Westpac expects rates to continue rising through 2027, reaching 4%, as the RBNZ works to bring persistent underlying inflation back towards its target.