ASB now tips earlier RBNZ hikes
New Zealand borrowers face a higher‑for‑longer mortgage rate environment as the Iran war drives up fuel costs and forces the Reserve Bank to refocus on inflation.
ASB’s latest Economic Weekly says “those economic consequences were front and centre of the RBNZ’s Monetary Policy Review on Wednesday last week,” with the central bank holding the official cash rate (OCR) at 2.25% but adopting a clearly more hawkish tone.
ASB economists now expect the RBNZ to start lifting the OCR in September, rather than December, with 25bp hikes in September and December and a peak of 3.25% by mid‑2027.
As the report notes, “we have revised our OCR outlook and now expect a timelier pace of monetary policy normalisation, with 25bp hikes in September and December and a 3.25% OCR endpoint by mid‑2027.”
Global developments are adding to the squeeze. Peace talks between the US and Iran have collapsed, with President Trump signalling a naval blockade of the Strait of Hormuz and oil prices jumping back above US$100 a barrel. European gas futures are also sharply higher, reinforcing the risk of a broader, longer‑lasting energy shock.
At the mortgage coalface, ASB’s latest Home Loan Rate Report likewise argues that borrowers are moving into “the next phase of the mortgage rate cycle”, with the OCR at 2.25% but popular one‑ and two‑year fixed rates already nudging higher as markets price in future tightening.
Fuel and inflation squeeze household budgets
Higher fuel costs are already feeding through to household budgets and inflation data.
Petrol prices surged from just above $2.50 per litre (91 octane) to more than $3.30 in March, adding more than $16 a week to the average household fuel bill and crowding out discretionary spending. ASB estimates that, on average, the current oil shock will add around $55 a week to total household living costs over 2026, roughly 50% more than it was forecasting at the start of the year, with most of that increase fuel‑related.
ASB expects March’s Selected Price Indexes to show a clear “US‑Iran war related jump”, with sizeable increases in petrol and diesel and follow‑on rises in airfares.
On ASB’s forecasts, annual CPI is set to lift from 3.1% in Q1 to 4.4% in Q2, above the RBNZ’s own projections. The bank cautions that “the key is whether this tick up in inflation will flow through into more generalised and sustained price rises that could prompt decisive and timely OCR increases by the RBNZ.”
Housing demand likely to cool as rates rise
So far, REINZ housing data remain relatively steady, but ASB expects the house price index to flatten in March before softening later in 2026 as higher mortgage rates and fuel costs bite.
In its separate rate report, ASB stresses that “it’s not a one-way street for mortgage rates over the next year or two, with several opposing forces at play,” but also notes the risks for mortgage rates are now “tilted more towards further increases than cuts”.
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