Oil shock stirs fresh uncertainty for Kiwi mortgage borrowers as advisers urge caution
The Reserve Bank’s Monetary Policy Committee (MPC) heads into its next OCR review with a clear consensus to hold the official cash rate at 2.25% – but far less agreement on how quickly to move from there.
A fresh oil shock from the Iran conflict and disruption in the Strait of Hormuz is pushing up fuel and freight costs, testing how long the bank can stay patient as inflation pressures build in a fragile economy.
Governor signals patience, but remains vigilant
Recent comments from governor Anna Breman and the bank’s latest communications help explain why markets see the committee leaning closer to the dovish side, even while remaining “vigilant” on inflation.
The governor has laid out a framework that focuses on the persistence of inflation rather than the immediate spike, stressing that monetary policy should not overreact to price moves it can do little about in the near term. The emphasis is on preventing a temporary oil‑driven surge from becoming embedded in expectations, wages and broader price‑setting.
That broad stance is echoed by industry leaders on the ground. Bruce Patten, CEO & managing director of the New Zealand Financial Services Group (NZFSG), says the central bank should resist calls to move quickly.
“I believe they should stay patient. No increase but no decrease as things are so fragile right now, we just need to sit tight and hope for an outcome shortly, as we are going to face some short-term inflation issues because of it,” Patten said.
Kris Pedersen, managing director at Kris Pedersen Mortgages, agrees RBNZ should not add to the current uncertainty.
“I think they should definitely hold at present. For the time being this issue needs to be ‘looked through’ as we are going to see confidence get turned off quickly… The RBNZ needs to provide some sanity at times like this rather than adding to this panic,” Pedersen said.
Against that backdrop, local banks are divided over how fast RBNZ should steer the OCR back towards neutral.
Hawks warn real rates are too low
On one side are the hawks, who see the oil shock as a classic inflation surge landing on top of an already uncomfortable starting point. Westpac economists argue that fuel and freight disruptions are likely to push annual inflation into the 4–5% range and that the current OCR was set under a very different outlook.
Their concern goes beyond higher petrol and transport costs to how quickly pricing and wage‑setting behaviour might adjust. With surveys already showing elevated pricing intentions, visibly rising input costs and a war‑related narrative, firms may feel they have licence to push through larger price increases. On this view, the real OCR has slipped into deeply negative territory.
Westpac’s hawk scenario argues it is “no longer appropriate to retain stimulatory conditions” and that policy should be at least neutral, with a quick move in the OCR to above 3% to get ahead of any drift in inflation expectations.
Hawks also warn that if other central banks tighten and the RBNZ lags, a weaker New Zealand dollar could add another round of imported inflation.
Doves fear tightening into weakness
The doves see the same oil‑driven spike in prices, but draw very different conclusions, focusing instead on the domestic cycle.
Growth late last year was weaker than expected, with the recovery described as fragile and uneven even before the Middle East conflict. The labour market has softened, unemployment is up to 5.4%, underutilisation is higher, and consumer and business confidence has fallen sharply.
Kiwibank economists stress that this shock is hitting an economy that has already scraped its way out of the last downturn, with savings buffers run down, fiscal support fading, and wage growth cooling. They argue firms may struggle to fully pass on higher costs to households already squeezed by the cost of living.
Westpac’s dove scenario underlines that New Zealand already has spare capacity, suggesting further tightening now would risk pushing unemployment above 6% and potentially tipping the economy back into recession.
Glen McLeod, head of Link Advisory, says the source of the shock matters.
“At this point, patience makes sense. The current oil shock is coming from global supply disruption rather than excessive domestic demand… A wait-and-see approach allows policymakers to better understand whether this shock is temporary or something more persistent before acting,” McLeod said.
What it means for borrowers
As markets debate “hawk” versus “dove” scenarios, advisers say borrowers should focus less on trying to pick the perfect forecast and more on their own resilience.
Patten stresses that decisions should start with affordability.
“If they are in a strong financial position and can ride out the rate spikes then sit tight,” he said. “However, if affordability is an issue they should look at fixing for longer… The whole reason the economists are complicated is they just don't know what's going to happen.”
Pedersen favours hedging.
“I am a believer of hedging by breaking into different rate terms at times like this as really no one knows exactly how this plays out so it is better to provide some cover by not having everything expiring at the same stage,” she said.
Elyce Peters, director and mobile mortgage adviser at The Mortgage Girls, says the hawk‑versus‑dove debate ultimately comes back to risk tolerance.
“At its core, this comes down to how much you believe rates could go up versus come down... and how confident you are in either direction,” Peters said. “You’re not trying to pick the perfect rate, you’re deciding how much risk you’re comfortable taking.”
For many advisers, the bigger risk is recession and job losses. As Patten puts it: “Right now I'm more concerned for the risk of recession and job losses… the potential implications of what is happening right now could have wide ranging impacts.”
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