ANZ economists have changed their interest rate outlook and now expect three consecutive Official Cash Rate hikes - in July, September and October.
That would bring the OCR to 3%, up from its current level of 2.25%.
The move follows last week’s Reserve Bank Monetary Policy Review, which, while leaving the OCR on hold, was widely perceived as more hawkish in tone (i.e. more concerned about inflation risk).
The RBNZ committee would not want to repeat the mistake of the Covid era, “when policy was kept too loose for too long”, ANZ chief economist Sharon Zollner said.
“Essentially, we see the RBNZ becoming too uncomfortable with an OCR in stimulatory territory as inflation inevitably rises,” she said
ANZ had previously been forecasting the first hike in December.
After “solid hints” in last week’s statement, Zollner said she expected the RBNZ to conclude “the risks of going too late outweigh the risks of hiking too soon, as long as the OCR is not considered contractionary.”
At 3%, the OCR would still be in the RBNZ’s neutral range.
Even with the OCR still relatively low, at 3%, the hikes would be “very potent”, Zollner said.
“Therefore, we are no longer forecasting the OCR will need to increase to 3.5% – we are flat-lining it at 3%."
Meanwhile, ASB economists now expect the RBNZ will start to raise the OCR in September 2026 (previously December) to an OCR endpoint of 3.25% by mid-2027.
Financial markets have been more aggressive in pricing in rate hikes for some time.
As of the weekend, New Zealand rate markets were pricing a 35% chance of a hike at the next Reserve Bank meeting on 27 May, and a 95% chance by July.
ANZ sees persistent demand-side impacts of high petrol prices, dampening incomes and confidence enough to “take the heat out of the medium-term inflation picture”.
“It is not a given that hiking the OCR this year will prove to have been the right thing to do, in the fullness of time [insofar as we will ever know],” Zollner said.
“The demand-side hit from this negative national income shock should not be underestimated; nor should the tightening in financial conditions already seen.”
But Zollner pointed to the hawkish lines in last week’s MPR as evidence that the RBNZ was starting to show concern about the need to head off inflation.
“The Monetary Policy Committee is focused on ensuring that inflation returns to the 2% target midpoint over the medium term,“ last week’s statement said.
“This requires core inflation and wage growth to remain contained and medium- and long-term inflation expectations to remain around 2%. If these conditions are not met, decisive and timely increases in the OCR would be required.”
The RBNZ is currently forecasting the annual inflation rate (currently 3.1%) to rise to 4.2% in the second quarter of the year.
Zollner said she couldn’t stress the uncertainty of the outlook enough.
“A July kick-off for hikes is not a high-conviction view; it is just what we currently see as the single likeliest timing as we stare into the murk.
“Take everyone’s forecast with a generous pinch of salt – including both ours and the Reserve Bank’s. That’s just the world we find ourselves in."
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.