Despite the Reserve Bank of New Zealand (RBNZ) signaling a delay in another Official Cash Rate (OCR) hike until December, financial markets and economists from the country’s four main banks are now anticipating a reversal of that decision next week. The likelihood of a 25 basis point increase to 3% on Wednesday is nearly 90%, with a 50% chance of another hike in December.
While third-quarter inflation dropped from 4.1% to 3.7%, economists Alexandra Turcu and Elliott Lowe from Kiwibank argue that a sharp rise in fuel, airfares, construction costs, and the weak New Zealand dollar could push annual inflation to 4.5%. They caution that the last thing the economy needs right now is an OCR hike, as consumers are already stretched thin by rising costs for petrol, rates, and electricity.
ANZ chief economist Sharon Zöllner believes the most prudent course is an OCR hike now to stabilize inflation. She warns that failing to act could further weaken the New Zealand dollar, which is already under pressure. Meanwhile, Westpac’s Kelly Eckhold expects inflation to reaccelerate above 4% by year-end, suggesting the RBNZ will see a hike as the path of least resistance.
ASB’s Mark Smith warns that inflation may remain elevated into 2027, while BNZ’s Doug Steel notes that the RBNZ is likely to focus on fourth-quarter inflation pressures, which are expected to exceed projections. The consensus among economists is that further hikes could follow, with some predicting the OCR peaking at 4% by mid-2027.