{"id":603006,"date":"2026-09-17T07:50:11","date_gmt":"2026-09-17T07:50:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/603006\/"},"modified":"2026-09-17T07:50:11","modified_gmt":"2026-09-17T07:50:11","slug":"rbnz-has-no-choice-but-to-raise-ocr-in-october-bnzs-stephen-toplis-says","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/603006\/","title":{"rendered":"RBNZ has ‘no choice’ but to raise OCR in October, BNZ’s Stephen Toplis says"},"content":{"rendered":"

Stronger-than-expected gross domestic product (GDP)<\/a> will likely nudge the Reserve Bank towards an Official Cash Rate (OCR) hike in October, ANZ senior economist Matthew Galt says.\u00a0<\/p>\n

Statistics NZ’s June quarter GDP figures<\/a> showed New Zealand’s economy grew 0.2% in the quarter. Construction was the leading contributor to the overall GDP increase, with the figures impacted by the Middle East conflict and related fuel price increases.<\/p>\n

\u201cGlobal developments since then [the Reserve Bank’s September Monetary Policy Statement] have already been suggesting it would be prudent to hike sooner rather than later, and the resilience shown in today\u2019s GDP data adds further pressure in that direction,\u201d Galt said.<\/p>\n

Oil prices have moved sharply higher in the last fortnight, posing renewed inflation risk, Galt said, and the trade-weighted index, measuring the value of the NZ dollar against major trading partners currencies’, was also now lower than the Reserve Bank assumed, adding to imported inflation pressure.<\/p>\n

The Reserve Bank has previously hinted strongly at a possible pause<\/a> at the next OCR review on October 28 after increasing the OCR to 2.75% from 2.50%<\/a> on September 2.<\/p>\n

‘The Reserve Bank has no choice’<\/p>\n

Galt is not alone in his thinking over the OCR with BNZ head of research Stephen Toplis saying things had changed dramatically.\u00a0<\/p>\n

“We were sceptical about the appropriateness of the stance but felt we had to accept the [Reserve] Bank\u2019s intent. The market did likewise in reducing the chance of a rate increase in October to a very low level,” Toplis said.<\/p>\n

“But things have changed dramatically. So much so that we now think the Reserve Bank has no choice but to raise the cash rate 25 basis points in October,” he said, indicating that BNZ was changing its forecast to include an October hike – now projecting 25 basis point increases at each meeting until the OCR reaches 3.75%.\u00a0<\/p>\n

The Reserve Bank is tasked with keeping Consumers Price Index (CPI) inflation between 1% and 3%. In the June quarter it came in at an annual rate of 4.1%.<\/p>\n

‘Recovery is likely to be patchy’<\/p>\n

Galt said the latest GDP data showed a slowdown in growth over the June quarter as fuel prices surged but the economy was more resilient than feared.<\/p>\n

\u201cAs expected, the details showed second quarter weakness in areas exposed to discretionary spending as higher fuel prices and global uncertainty hit. Accommodation and food services, and transport, postal and warehousing went backwards in the quarter, and growth in retail trade was subdued.\u201d<\/p>\n

With GDP data released with a lag, Galt said timely data suggested the economy had grown at a \u201creasonable pace\u201d in the months since April, May and June.\u00a0<\/p>\n

\u201cHowever, the recovery is likely to be patchy as ongoing offshore volatility buffets both New Zealand and our trading partners.\u201d<\/p>\n

Kiwibank economists Alexandra Turcu and Elliott Lowe also noted the economy fared better than expected, and while it grew a lot slower than it did in the March quarter, they were pleased to see it still growing at all.<\/p>\n

\u201cThe path forward into the rest of the year will be determined by whether the momentum we seem to have carried forward into June, will continue. In particular, Kiwi shoppers will need to keep filling their baskets, to sustain higher growth rates.\u201d<\/p>\n

\u201cThe recent up-tick in the oil price will also not be lost on the economic growth outlook for the rest of the year. The economic shock that began in March is still rippling through the economy. Some bigger waves are heading our way once again, with domestic petrol prices jumping up once more,” they said.<\/p>\n

“You\u2019ll be glad if you fuelled up early in the week.”<\/p>\n

Meanwhile ASB economist Wesley Tanuvasa said the economic outlook was complex given the multitude of moving parts.<\/p>\n

And while the activity starting point is higher, oil prices remain high and volatile, he said.\u00a0<\/p>\n

\u201cWe remain a bit nervous of stop-start momentum due to this. Conversely, there could be an underlying feeling of \u2018just getting on with it\u2019 given how much of a slog the last three years have been.\u201d<\/p>\n

\u201cLooking ahead, it is becoming increasingly unlikely that the global environment will settle in the near term, and this can have opposing implications for year-end growth (down) and inflation (up). New Zealand is worse off from a negative supply shock,” he said.<\/p>\n

\u2018It would be prudent to hike sooner rather than later\u2019<\/p>\n

The Reserve Bank’s Monetary Policy Committee (MPC) is set to make its next OCR decision on October 28 – just 10 days before the election, rounding out the year with another review on December 9.<\/p>\n

ANZ’s Galt said at the September review, the Reserve Bank was “non-committal” about when the next OCR hike might come but was leaning towards a pause in October.\u00a0<\/p>\n

“However, four of six committee members saw inflation risks as tilted to the upside and developments since then had already been suggesting it might be prudent to hike sooner rather than later.\u201d<\/p>\n

\u201cToday\u2019s stronger-than-expected GDP data will nudge the MPC further towards an October hike,\u201d Galt said.<\/p>\n

There was more data to come before the MPC\u2019s October meeting \u201cthat could yet change the picture\u201d, he said, pointing to the New Zealand Institute of Economic Research\u2019s Quarterly Survey of Business Opinion, which will be released on October 6, and Stats NZ\u2019s Consumers Price Index figures for the September quarter on October 22.<\/p>\n

\u201cHowever, we expect by the time the meeting rolls around, the MPC will conclude that the most prudent course of action is in fact to proceed with getting back to neutral promptly, with a 25 basis point hike.\u201d<\/p>\n

‘Like doing brain surgery with a sledgehammer’<\/p>\n

ASB’s Tanuvasa said: \u201cSetting monetary policy during a protracted fuel price shock is a bit like doing brain surgery with a sledgehammer.\u201d<\/p>\n

\u201cHawks and doves will continue to argue about what the optimal policy approach is, but no one can confidently conclude what this is in real time. Even with the fullness of time, this may prove difficult to examine. What we do know is that the RBNZ seemed nervous around the economic recovery in its September MPS.\u201d<\/p>\n

\u201cStronger GDP today helps settle some of those nerves,\u201d he said. \u201cOn balance, this supports our view of removing monetary stimulus steadily rather than gradually. We retain our call of a 3.25% year-end OCR, but of course, this view is fickle and has two-sided risks.\u201d<\/p>\n

\u2018Nor will it give them impetus to push the interest [rate] higher any faster\u2019<\/p>\n

But Kiwibank\u2019s Turcu and Lowe said; \u201ca slight nudge higher in growth for the economy in the second quarter of the year will not alter the Reserve Bank’s resolve to take the interest rate up to 3% by the end of 2026\u201d.<\/p>\n

\u201cNor will it give them impetus to push the interest [rate] higher any faster.\u201d<\/p>\n

\u201cAlthough the positive growth rate will have been a pleasant surprise relative to their 0% growth forecast, the second quarter growth numbers are not a hot reading,\u201d they said.<\/p>\n

The reality is the labour market was still weak, there was still substantial spare capacity in the economy and a weak consumer, Turcu and Lowe said.<\/p>\n

\u201cA strong result for the construction industry aside, the economic recovery is not fully actualised.\u201d<\/p>\n

\u201cAll the factors that fed into the Reserve Bank\u2019s September Monetary Policy Statement still hold true. The embers of economic growth are definitely present. With a bit of luck, we could see ourselves building a proper bonfire this time next year.\u201d<\/p>\n

\u2018The NZ economy has enough resilience to cope with those challenges\u2019<\/p>\n

Finance Minister Nicola Willis told reporters after the GDP announcement that the latest figures defied expectations.<\/p>\n

Asked if she could be confident in the economic recovery continuing given what was happening in the Middle East, Willis said there was some realism about that as recent developments had been concerning and that was being reflected at the pump.<\/p>\n

She said there had been increases in oil prices and more instability in the region than anyone would like to see.<\/p>\n

\u201cHowever, all of the advice that I am getting from Treasury and my other advisers is that the New Zealand economy has enough resilience to cope with those challenges, and we should expect that it will be continuing to grow in the present time.\u201d<\/p>\n

\u2018This election is about the cost of living,\u2019 Labour\u2019s Barbara Edmonds says<\/p>\n

Labour finance spokesperson Barbara Edmonds said Willis could \u201cspin herself dizzy but New Zealanders know the truth: they\u2019re working harder, but still going backwards\u201d.<\/p>\n

\u201cI hear it every day from my constituents. Families are struggling to afford the basics. Wages aren\u2019t keeping up with rising costs. Businesses are closing. These are the direct results of National\u2019s cuts,\u201d Edmonds said.<\/p>\n

“This election is about the cost of living, and National has taken New Zealand backwards.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Stronger-than-expected gross domestic product (GDP) will likely nudge the Reserve Bank towards an Official Cash Rate (OCR) hike…\n","protected":false},"author":2,"featured_media":603007,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[138,111,139,69],"class_list":["post-603006","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-business","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/603006","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=603006"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/603006\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/603007"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=603006"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=603006"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=603006"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}