OCR rise tipped for second half of this year
The NZIER monetary policy shadow board says the RBNZ should start raising the OCR in the second half of this year.
Wednesday, February 18th 2026, 6:00AM
by Sally Lindsay
In contrast. Kiwibank chief economist Jarrod Kerr says while the economy shows tentative signs of recovery, any talk of OCR hikes is way too early.
“Do we need rate hikes this year? It’s simply too early to know, with conviction. And the path of lest regret is to hold until next year,” he says.
The NZIER’s shadow board members views on where the OCR should be in a year’s time ranged from 2.25-2.75%.
The general view is the central bank should be cautious at this stage and wait for further data to assess how the economy will track over the coming months.
One member stressed that delaying OCR hikes risks OCR becoming too restrictive in the long run.
The RBNZ’s own Survey of Expectations of business leaders and professional forecasters released at the end of last week shows they expect inflation to rise across the board.
One year ahead expectations for CPI inflation rose by 20 basis points from 2.39% to 2.59%, while expectations for two-year-ahead increased by 9 basis points from 2.28% to 2.37% and five year-ahead expectations escalated also by 9 basis points from 2.22% to 2.31%. On 10 year-ahead inflation expectations there was 12 basis points increase from 2.18% to 2.30%.
However, a separate expectations survey of households show they expect inflation to be lower across the board.
For one year ahead the mean household expectation for annual inflation remained at 4%, the two-year-ahead expectation declined from 4.3% to 3.4% and the five-year-ahead annual expectation decreased from 3.8% to 3.3%.
The mean one-year-ahead annual house price inflation expectation remained at 1.8%.
NZIER shadow board member BNZ head of research Stephen Toplis says growth and inflation have proven stronger than expected and there is a mass of stimulus left in the system.
“The sooner that stimulus is reduced the greater the chance that the eventual move in interest rates will be modest.”
Westpac chief economist Kelly Eckhold says there is no doubt interest rates are highly stimulatory and it’s increasingly clear the 0.75% of interest rate cuts after August last year were not required.
“Once confidence is attained that above trend growth is here to stay, then interest rates should be returned to neutral levels (3.75%).
Undue delay will increase the chances of the OCR rising to 4% or beyond.”
Kerr says all eyes and headlines for the rest of the week will be on the RBNZ’s track.
The November track had implied the hiking cycle commencing in the second half of next year. With stickier inflation and better growth, that’s likely to be brought forward. The key question Kerr says is: By how much?
“We hope the RBNZ avoids getting ahead of itself. A refreshed track pointing to an early 2027 lift off feels appropriate. But market traders are more aggressive, with almost two hikes priced this year. That’s too punchy, and premature.”
He says while there has been stronger than expected data, the economy is not yet taking off, and is a year from fully recovering.
Toplis, Kerr and Eckhold are all members of the NZIER shadow board.
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