Westpac Predicts 25 Basis Point OCR Increase to 2.75% in September
Westpac forecasts that the Reserve Bank of New Zealand (RBNZ) will raise the official cash rate (OCR) by 25 basis points to 2.75% in its policy statement due on September 2, 2026. The bank anticipates the hike to be broadly expected, with no aggressive surprises or shifts in policy tone that would significantly unsettle markets.
October Rate Decision Likely Data-Dependent with a Cautious Tone
Kelly Eckhold, Westpac’s Chief Economist, highlighted that the RBNZ is expected to signal a data-dependent approach in its September statement. Whether the central bank opts to further tighten in October will depend heavily on economic data released in the interim. Given the OCR’s proximity to the neutral rate of around 3% frequently cited by Westpac, the Reserve Bank is expected to maintain policy flexibility without committing firmly to an October hike.
OCR to Remain Near 3% by Year-End, Aligning with May Forecasts
Westpac anticipates the RBNZ’s updated macroeconomic projections and interest rate pathway in September will closely reflect the bank's May outlook, with the OCR steadying at approximately 3% by the end of the year and a peak near 3.3%. Two risk scenarios are noted: a 10–15% chance of a more hawkish surprise where October and December hikes push the OCR to 3.25%, and a similar probability for a dovish scenario involving a pause or uncertainty around further tightening through year-end.
Recent Economic Data Aligns with RBNZ Expectations
Since May, New Zealand’s economic indicators have generally matched RBNZ assumptions. Unemployment remains steady at 5.6%, slightly above the forecasted 5.4%. Annual inflation to June stood at 4.1%, marginally below the 4.2% projection. Inflation expectations among households, businesses, and professionals have eased towards levels seen before recent oil price shocks. Meanwhile, fixed mortgage rates have risen about 35 basis points, and the NZD trade-weighted index exceeds the May projections. These developments may prompt the RBNZ to reassess financial conditions at the September meeting.
Recovery Remains Fragile with Elevated Core Inflation Concerns
Eckhold regards lifting the OCR to 3% as an evident step but notes uncertainty remains whether the RBNZ will raise rates at every policy review due to the economy’s fragile recovery and nascent labour market improvements. She expresses caution about the rapid inflation decline driven by supply shocks, forecasting that persistent core inflation above the target could necessitate further tightening into 2027. All policy decisions will remain data-dependent, maintaining a flexible approach to the monetary path ahead.
The expected September rate hike and subsequent moves will influence NZD performance and market interest rate expectations. Investors and market participants will closely monitor incoming economic data over coming months to gauge the RBNZ’s monetary policy direction.