OCR increases should start sooner rather than later
ASB’s economists are favouring OCR hikes to start in July while Westpac thinks September is the right time.
Friday, May 15th 2026, 10:42AM
by Sally Lindsay
ASB senior economist Mark Smith says OCR hikes are a matter of when and not if, with businesses and professional forecasters taking part in the RBNZ’s latest Survey of Expectations seeing a steeper policy track over the year ahead, even though longer-term rate expectations remain slightly below ASB’s 3.25% neutral estimate.
The RBNZ’s survey also shows annual house price increase expectations slumped to 0.33% and 2.80% for one and two years ahead respectively. ASB chief economist Nick Tuffley says this will cause few sleepless nights at the RBNZ.
In its latest Economic Overview, Westpac’s economics team says while raising the OCR later this month is an option for the RBNZ and allows for a more gradual path which could be desirable given uncertainty over the duration of the Iran war, tightening when confidence is fragile could exacerbate the downturn.
Westpac doesn’t expect a recession. The bank’s view is that the Iran war will merely cause a pause in the economic recovery.
A major headwind for households is the changing interest rate environment.
Over the past few years, many borrowers have been rolling off the relatively high interest rates that were previously on offer and onto lower ones.
While that process will continue for a few more months, mortgage rates have been pushing higher again.
As a result, borrowers who are now refixing their mortgages are seeing smaller falls in their borrowing costs. And over the coming year, borrowers will start to gradually roll onto higher rates.
The Iran war has removed much of the support for housing, Westpac chief economist Kelly Eckhold (pictured) says.
“Sharply weaker consumer confidence, weaker employment prospects and the potential for
earlier interest rate increases imply a much weaker housing outlook.
“We envisage flat to slightly lower house prices over 2026 as households internalise the impact of the hit to incomes and balance sheets coming from higher oil prices and weaker discretionary incomes,” he says. Diesel prices are at a 50-year high.
The bank says a lift in population growth, led by higher migration, should provide some
offsetting support for housing.
Departures of New Zealanders are coming off their highs, and economists expect this to continue as tougher conditions in Australia diminish its relative appeal.
Eckhold also expects a lift in foreign arrivals over this year, although much of this will come under the Parent Boost Visa, which may shift the mix of demand towards larger properties rather than adding to demand as a whole.
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