Economy 'trying to find its mojo' as lower rates to lift buyer confidence into 2026
Inflation expectations have held firm despite a recent uptick in headline inflation, giving the Reserve Bank (RBNZ) scope to continue easing the official cash rate (OCR) to support a sluggish economy, according to ASB senior economist Mark Smith.
In an ASB report, Smith said the central bank can “look through” short-term inflation pressures and focus on medium-term trends thanks to "contained inflation expectations".
ASB expects a 25-basis-point OCR cut in November, bringing the rate to 2.25%, saying the RBNZ “would be well placed to push the OCR lower still in 2026 if there is the need to kick-start the sluggish NZ economy".
Inflation expectations remain stable despite CPI rise
The RBNZ’s Q4 Survey of Expectations showed minimal movement in inflation forecasts after the October 50-basis-point rate cut and third-quarter CPI lift to 3%.
- 1-year-ahead: 2.39% (up from 2.37%)
- 2-year-ahead: 2.28% (unchanged)
- 5-year: 2.22% (down from 2.26%)
- 10-year: 2.18% (up from 2.15%)
“The RBNZ will be somewhat reassured by this and relieved that inflation expectations did not follow the headline CPI higher,” Smith said.
Stats NZ’s latest release echoed the same trend, showing stable inflation expectations across all horizons and projecting the OCR to average 2.25% by December 2025 and 2.31% by late 2026.
Lower rates, steady jobs, modest growth ahead
Survey respondents also expect house price inflation to ease to 2.39% (one year) and 3.47% (two years), while GDP growth is seen rising to 2.06% and 2.27% – the strongest outlook since 2022.
Labour-market expectations remain steady, with unemployment projected to dip from 5% to 4.7%, helping “dampen medium-term inflation”.
Wage growth forecasts have edged up to 2.82% next year and 3.02% in the year after, consistent with ASB’s view that wage pressures remain contained and “should help cap core inflation, particularly if productivity picks up".
What it means for mortgage advisers
For mortgage advisers, the findings point to a lower-for-longer rate environment and improving borrower sentiment into 2026. Anchored inflation expectations and cautious growth suggest favourable conditions for refinancing and first-home lending, as borrowers regain confidence in the stability of rates.
As Smith summed up: “Annual inflation approaching 2% by the end of next year will provide the RBNZ with scope to lower the OCR and provide economic support to an economy trying to find its mojo.”
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