Luxon banks on ‘green shoots’ ahead of poll
New Zealand will go to the polls on November 7, with ASB warning that the official cash rate (OCR) is now more likely to rise in late 2026 as inflation proves stubborn.
Prime Minister Christopher Luxon last week confirmed the election date and pitched an improving backdrop, saying “the economic recovery is up and running” and reiterating his plan “to deliver on our plan to fix and basics and build the future” under the existing three‑party coalition.
ASB senior economist Mark Smith says the timing suggests the government is playing for time, hoping that the “green shoots” evident in recent data strengthen and that voters feel better economic conditions by polling day.
Households and housing still stuck in limbo
For now, ASB sees the household sector and housing market “in limbo”. Retail card spending dipped in December after a strong November, and the Reserve Bank’s nowcasts for GDP growth have been trimmed to 0.5% in Q4 2025 and 0.7% in Q1 2026.
Housing data were mixed in December, with prices rebounding modestly but sales falling again. Listings have eased back but overall stock remains at decade‑high levels, reinforcing buyer bargaining power. ASB expects the housing market to recover through 2026 but limits house price gains to around 4–5% a year, given below‑trend net migration and high listings.
Sticky inflation brings forward OCR hike timing
December’s CPI result – 0.6% for the quarter and 3.1% annually – came in firmer than the RBNZ’s November projections, with non‑tradable inflation still at 3.5% and core measures picking up. ASB’s sectoral‑factor model estimate of core inflation has risen to 2.8%, which Smith says “points to a firming underlying inflation pulse emerging.”
ASB now expects annual CPI to sit in a 2.5–3% range over 2026, rather than falling to the 2% area the RBNZ is targeting, and says “annual inflation [could] breach 3% again at some stage this year.” As a result, it has brought forward the start of the next hiking cycle, forecasting a 25bp OCR increase in December 2026 and a further 50bp of rises in early 2027, taking the cash rate back to a neutral 3%.
Swap markets are already reacting, with NZ swap yields around 5–25bp higher on a week ago as traders price in earlier and higher OCR moves.
Election won’t stop RBNZ, ASB says
Despite the November poll, ASB argues the central bank will not be constrained by politics, citing its statutory independence. Smith notes that if conditions warrant it, “the RBNZ could potentially start raising the OCR earlier in 2026”, and that market pricing already implies around 50bp of hikes by year‑end, with better‑than‑80% odds of a 25bp move by September.
Read the ASB Economic Weekly report for more insights.
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