Rate Hike Looms as New Zealand Surveys Point to Further Interest Rate Increases

New Zealand's rate outlook has strengthened ahead of this week's Reserve Bank Monetary Policy Statement, with two independent surveys pointing to a likely interest rate hike. According to NZIER's Monetary Policy Shadow Board and Westpac's client survey, just over half of the board members recommend a 25-basis-point increase to 2.75%, while 79% of Westpac clients expect exactly that outcome.

Market pricing implies a 90% chance of a 25bp move. Some Shadow Board members advocate holding the OCR at 2.50%, citing subdued domestic activity and easing inflation expectations, while others disagree on timing. Westpac's chief economist Kelly Eckhold argued the case for further tightening remains intact.

Both surveys suggest the OCR has more to climb over the next year. NZIER's Shadow Board members centre their one-year-ahead expectations around 3% to 3.25%, while 64% of Westpac clients expect a 3% projection and 55% believe the OCR will reach 3% by year-end.

For mortgage advisers, the message is gradual upward pressure on borrowing costs as the OCR climbs further. With most forecasters still pointing to a higher OCR over the next 12 months, advisers should prepare first-home buyers and property investors for mortgage rates that stabilise rather than fall in the near term.