{"id":585716,"date":"2026-08-31T08:44:11","date_gmt":"2026-08-31T08:44:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/585716\/"},"modified":"2026-08-31T08:44:11","modified_gmt":"2026-08-31T08:44:11","slug":"ocr-preview-reserve-bank-expected-to-hike-cash-rate-to-2-75","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/585716\/","title":{"rendered":"OCR Preview: Reserve Bank expected to hike cash rate to 2.75%"},"content":{"rendered":"
\u201cWe also expect the RBNZ (Reserve Bank of New Zealand) to affirm more tightening is to come, with a higher OCR deemed necessary to deliver 2% inflation on a sustained basis.\u201d<\/p>\n
New Zealand\u2019s annual Consumers Price Index inflation rate was sitting at 4.1% in the June quarter.<\/p>\n
Although most economists expect that to be a peak, as fuel prices have settled, it is still likely to remain outside the RBNZ\u2019s 1-3% target range for several more months.<\/p>\n
While this week\u2019s decision may be straightforward, the RBNZ faces a difficult balancing act from there.<\/p>\n
While it seeks to head off the imported inflation from elevated fuel prices and risks that is passed through the economy, it also needs to ensure the recovery continues to gain momentum.<\/p>\n
\u201cThe strategy to return the OCR to around 3% by year-end seems clear and uncontroversial,\u201d said Westpac chief economist Kelly Eckhold.<\/p>\n
But it was unclear that further increases would be required at every remaining meeting in 2026, he said.<\/p>\n
\u201cThe economic recovery remains fragile and significant risks abound. Care should be taken to not take the recovery for granted \u2013 especially while the improvement in the labour market remains embryonic.\u201d<\/p>\n
Eckhold said he was sceptical that inflationary supply shocks would abate any time soon, with the geopolitical situation still highly volatile.<\/p>\n
\u201cHence, it\u2019s likely that higher interest rates will be required through 2027 once the economy is sustainably operating above trend and the labour market is recovering,\u201d he said.<\/p>\n
BNZ head of research Stephen Toplis has argued the central bank will need to hike at every meeting between now and May 2027 \u2013 taking the OCR to 4%.<\/p>\n
That implies some strength in the recovery but also that the inflation battle will be hard-fought.<\/p>\n
At the other end of the spectrum, KiwiBank chief economist Jarrod Kerr wants to see the RBNZ hit pause and let the recovery strengthen before hiking the OCR.<\/p>\n
Despite that view, he agrees with the consensus that the RBNZ will hike again on Wednesday.<\/p>\n
Kiwibank’s Jarrod Kerr agrees the OCR is likely to rise on Wednesday.<\/p>\n
\u201cWe remain of the view that interest rates should remain stimulatory for now, to encourage investment and hiring,\u201d he said.<\/p>\n
\u201cThe economy needs support, and inflation pressures should ease from here.\u201d<\/p>\n
Unemployment (and underemployment) was rising, Kerr said.<\/p>\n
Wage pressures were subdued at 2%.<\/p>\n
\u201cThere is little sign of a wage price spiral. The weakness of the housing market, especially across the North Island, is doing little to entice development or consumption \u2026 the so-called wealth effect.”<\/p>\n
But the RBNZ\u2019s path had been well telegraphed, he said.<\/p>\n
The wholesale rates market was pricing in a near-100% probability of a move to 2.75% and a 3% cash rate was fully priced by year-end.<\/p>\n
\u201cHikes are thought to continue next year, with an implied cash rate of 3.65% to end 2027,\u201d he said.<\/p>\n
\u201cWe disagree.\u201d<\/p>\n
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.<\/p>\n