Interest rates could be higher by the middle of this year
The ASB and ANZ have joined Westpac in thinking the Reserve Bank will be forced to raise the OCR this year instead of next.
Tuesday, January 27th 2026, 2:38PM
by Sally Lindsay
ASB has pencilled in a 0.25% hike in December this year – the same as Westpac – and 0.50% of further hikes in the first half of next year in light of a pick-up in underlying inflation pressures revealed on Friday.
CPI inflation hit 3.1% in the fourth quarter of last year, stronger than the RBNZ expected and its key measure of core inflation – the sectoral model – ticked up to 2.8% from 2.7%.
ASB senior economist Mark Smith says the bank’s core view is underlying price pressures this year are unlikely to cool inflation to the 2% level expected by the central bank.
Having headline inflation outside of it 1-3% band will be uncomfortable for the RBNZ, Sharon Zollner, ANZ chief economist says.
“In addition, measures of core inflation were mixed, rather than showing a clear disinflationary trend.”
The RBNZ’s core judgment is the large margin of spare capacity and contained housing market backdrop will help to cool domestic inflationary pressures, with annual CPI inflation falling into a 2.1-2.3% range over this year, but Smith says the ASB is less sanguine on the outlook and expects only gradual easing.
ASB’s fear is the tick up in businesses intentions to raise prices as demand recovers will halt the push lower in generalised inflation.”
It expects CPI inflation to remain in a 2.5-3% range this year, with the risk of annual inflation breaching 3% again at some stage.
“Hikes in the first half of next year will take the OCR to 3%, in line with our neutral OCR estimates,” Smith says.
“Rather than tapping on the monetary policy brakes, the moves should be interpreted as the RBNZ easing off on the accelerator.”
The wholesale market is already pricing in OCR hikes from mid this year.
Westpac chief economist Kelly Eckhold is predicting the OCR to hit 3.75% by the first half of 2028, through as many as six hikes by the RBNZ.
He says three of those hikes have already been priced in leading to a rise in two-, three- and five-year fixed interest rates. Rises in floating and shorter-term rates are likely half way through this year.
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