Economists warn delay could force sharper interest rate rises
Kiwi mortgage advisers can expect steady rates in the near term but a higher official cash rate (OCR) path from late 2026, after NZIER’s Monetary Policy Shadow Board urged the Reserve Bank (RBNZ) to hold fire this month while quietly preparing the ground for future hikes.
Hold at 2.25% while recovery beds in
The Shadow Board is now calling for the RBNZ to leave the OCR unchanged at 2.25% at the upcoming February Monetary Policy Statement, noting that while New Zealand’s recovery is gaining momentum, there is still significant slack in the economy and inflation has moved higher.
The prevailing view was that the central bank should adopt a cautious stance and hold off on any moves until more information is available on how the economy is evolving in the months ahead. One member also cautioned that additional rate cuts at this stage could lock in higher inflation.
Market pricing and major bank forecasts also point to the OCR staying on hold at 2.25% in February, reinforcing the wider consensus that the next move is unlikely to be a cut.
Consensus builds for late‑2026 tightening
Looking a year ahead, members’ preferred OCR settings cluster between 2.25% and 2.75%. NZIER says this reflects a broad consensus that RBNZ should commence raising the OCR in the second half of 2026.
Board members broadly expect earlier rate cuts to keep supporting demand over the next year, gradually absorbing the remaining slack in the economy. They also emphasised the need for RBNZ to keep a close eye on inflation expectations as growth firms up, warning that postponing rate increases for too long could ultimately force policy settings into an overly tight territory.
Inflation worries underpin cautious stance
Individual comments highlight why the Shadow Board still favours a hold today. BNZ's Stephen Toplis (pictured left) said “growth and inflation have proven stronger than expected and there is a mass of stimulus left in the system. The sooner that stimulus is reduced the greater the chance that the eventual move in interest rates will be modest.”
Westpac chief economist and Shadow Board member Kelly Eckhold (pictured right) warned that “interest rates are highly stimulatory and it’s increasingly clear that the 75 bp of interest rate cuts adopted post‑August 2025 were not required.”
“Once confidence is attained that above trend growth is here to stay, then interest rates should be returned to neutral levels (3.75%),” Eckhold said. “Right now, the degree of excess capacity and the likelihood of falling headline inflation allow time to assess. Undue delay will increase the chances of the OCR rising to 4% or beyond.”
Recent commentary around RBNZ’s outlook suggests inflation expectations are edging above the 2% midpoint, reinforcing Shadow Board concerns that easing too far could entrench price pressures.
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