Cooler jobs, cooler inflation: RBNZ can wait on hikes
New Zealand mortgage advisers are being quizzed more frequently about when the next OCR hike might land after inflation surprised on the upside late in 2025. But fresh analysis from Westpac suggests the Reserve Bank of New Zealand (RBNZ) still has more breathing space than its Australian counterpart – at least for now.
Westpac senior economist Satish Ranchhod (pictured) said “inflation surprised to the upside in both New Zealand and Australia in the latter part of 2025, with core inflation running hotter than expected on both sides of the Tasman.” That, combined with an abrupt shift in expectations for an earlier cash rate increase from the Reserve Bank of Australia (RBA), has prompted borrowers to ask if RBNZ will be forced to follow quickly.
Ranchhod’s view is that the answer is “not yet”. He argues there are “important cyclical differences between the normally highly correlated Australasian economies right now” that justify a slower tightening timetable in New Zealand.
Cooler inflation, softer jobs market in NZ
While inflation has picked up in both countries, New Zealand’s remains better contained. Headline CPI was 3.1% in the year to December – “just over the top of the RBNZ’s target range” – compared with 3.6% in Australia. Core pressures tell a similar story: New Zealand’s trimmed mean inflation has risen to 2.7% from 2.4%, but in Australia it has climbed to 3.4% year-on-year, outside the RBA’s band.
Labour market data also highlight a gap. The New Zealand unemployment rate is “cyclically high right now at 5.3%”, versus 4.1% in Australia. Ranchhod notes that the New Zealand jobs market, while stabilising, “remains on much weaker footing than in Australia”, with wage growth relatively subdued and “yet to show signs of turning higher”. That spare capacity, he says, “gives the RBNZ time compared to the RBA Board”.
Recovery firming, but from a weaker base
Recent indicators point to New Zealand’s economy “continuing to firm through the latter part of 2025 and early 2026, though the recovery is still uneven.” Business surveys such as the QSBO and PMIs show healthier trading conditions and hiring intentions, while consumer confidence and retail spending have lifted. Planned residential construction has “taken a sizeable step higher”, and per capita GDP growth has been rising more strongly in New Zealand than in Australia.
Even so, RBNZ estimates the output gap at around -2% of GDP in mid-2025, compared with an Australian economy where the RBA was unsure if slack existed at all. Ranchhod argues it will “take time for excess capacity in New Zealand to be eroded”, reinforcing the case for a later lift-off.
Westpac is reviewing its forecasts ahead of its February Economic Overview, but for now it “continue[s] to expect the RBNZ will start to raise the OCR in the latter part of this year and have pencilled in the first hike in December.” However, the “greater than expected strength in inflation and firming in economic activity” has clearly raised the risk of earlier increases, and markets have already brought forward their expectations.
For mortgage advisers, the key takeaway is that New Zealand is unlikely to mirror RBA’s timetable exactly, but clients should still be prepared for OCR hikes from late‑2026 if the recovery keeps firming.
For more economic insights, head over to WestpacIQ.
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