RBNZ Expected to Hike Interest Rates Despite Cooling Inflation

New Zealand's inflation rate is seen to be cooling down, but economists still expect the Reserve Bank (RBNZ) to increase the Official Cash Rate (OCR) again. According to ASB senior economist Mark Smith, the latest Selected Price Indexes suggest that inflation is moderating from its 4.1% peak in the second quarter.

The RBNZ projects annual headline inflation to drop to 3.3% in the September quarter, but economists such as BNZ's Doug Steel and ASB's Mark Smith believe it will continue to rise.

Steel expects the OCR to reach 3.25% by year-end, while Smith notes that there are two-sided risks, with a more contained external inflation environment potentially seeing the OCR peak below 3.25%, or a generalised and persistent uplift in inflation resulting in a higher OCR in 2027.

Westpac senior economist Satish Ranchhod says price pressures were softer than expected in July, but notes that domestic and international airfare increases could continue to drive up inflation.