NZ Banks Clash Over RBNZ Interest Rate Outlook

Economists at New Zealand’s major banks are divided over the future path of the Official Cash Rate (OCR), with Kiwibank and ANZ offering conflicting forecasts on whether the Reserve Bank of New Zealand (RBNZ) should raise interest rates to combat inflation.

The RBNZ held the OCR steady at 2.25% during its most recent meeting. The central bank stated the decision was a balance between the risks of higher medium-term inflation and the cost of unnecessarily stifling the economic recovery.

ANZ Forecasts Three Rate Hikes

ANZ economists have revised their outlook, forecasting three consecutive OCR increases in the second half of 2026. These hikes are projected for July, September, and October, which would bring the OCR to 3%.

ANZ chief economist Sharon Zollner stated that the RBNZ would likely want to avoid repeating errors from the Covid era, specifically when policy was kept too loose for too long.

Zollner indicated that the RBNZ may conclude that the risks of acting too late outweigh the risks of hiking too soon, provided the OCR is not viewed as contractionary.

Kiwibank Warns of Recession Risk

Kiwibank economists Jarrod Kerr and Alexandra Turcu have pushed back against the ANZ forecast, describing the prospect of further rate hikes as potentially reckless.

Raising interest rates is tone deaf, and potentially reckless. Because both businesses and households are struggling with increased costs, not surging demand.

Kiwibank economists Jarrod Kerr and Alexandra Turcu

Kiwibank argues that current economic pressures are not driven by demand, and that raising rates risks inducing another recession. The bank expects a contraction in economic activity in the current quarter.

Kerr and Turcu urged the RBNZ to watch, wait, and weigh up the facts rather than taking knee-jerk reactions before the Q2 and Q3 Consumer Price Index data points are available.

Inflation Targets and Geopolitical Pressures

The RBNZ’s monetary policy committee is focused on returning inflation to a 2% target midpoint, with a goal to keep inflation between 1% and 3%. This objective requires wage growth and core inflation to remain contained.

Current projections from the Reserve Bank place inflation at 3.0% for the March 2026 quarter and 4.2% for the June quarter. Reserve Bank Governor Anna Breman noted significant uncertainty in the outlook, particularly after peace talks between the US and Iran failed over the weekend of April 11-12, 2026.

Geopolitical instability in the Middle East and the shutdown of the Strait of Hormuz have led to skyrocketing fuel prices, increasing fears that inflation will rise. The RBNZ has warned that decisive and timely increases in the OCR would be required if inflation conditions are not met.

Broader Banking Outlook

Other financial institutions have offered varying timelines for potential rate movements:

• ASB and Westpac NZ believe rate hikes could occur starting in September.
• Westpac chief economist Kelly Eckhold stated she is open to the possibility of a hike as early as May, depending on how the situation evolves.

Stats NZ is scheduled to release its next inflation update on Tuesday, April 21, 2026, which will provide further data for the RBNZ’s upcoming policy decisions.