Westpac expects RBNZ to sit tight but signal hawkish patience
An immediate change in mortgage rates from next week’s Reserve Bank review is unlikely, with Westpac chief economist Kelly Eckhold expecting the official cash rate (OCR) to be kept at 2.25% on 8 April.
Westpac says the bank is unlikely to “respond in a knee-jerk manner to a near-term oil-driven lift in inflation”, instead using the April meeting to reinforce its medium‑term approach as it weighs the US–Israel war on Iran, higher energy costs, and a still‑soft domestic economy.
That stance comes as ASB and Westpac economists have sharply downgraded New Zealand’s 2026 growth outlook, and both now expect the recovery to be pushed back into 2027.
The April review will also feature the first post‑meeting press conference for a regular Monetary Policy Review, giving markets and mortgage customers more direct insight into how Governor Anna Breman and the Monetary Policy Committee (MPC) are thinking about the trade‑off between weak growth and rising inflation risks.
Eckhold notes the recovery is “still early – as demonstrated by the disappointing Q4 GDP outcome – and the economy is operating well below capacity”. In that environment, many firms may struggle to fully pass on higher fuel and input costs, which should limit second‑round price pressures even as headline inflation jumps.
Oil shock complicates inflation path and rate expectations
Westpac argues that, for now, the supply shock from the US–Israel war on Iran should be looked through, with the MPC instead “vigilant – and be seen to be vigilant – against the risk that inflation becomes persistent”. The bank has lifted its own CPI forecast, now expecting inflation to peak around 4.1% this year, while trimming its 2026 growth outlook to about 1.9% from 3.3% pre‑war.
ASB’s latest Quarterly Economic Forecast delivers a similar message, with the bank now expecting annual inflation to peak at around 4% by mid‑2026 before easing below 3% in 2027 as energy prices stabilise and domestic demand stays subdued.
Markets are currently pricing in more than three 25‑basis‑point OCR hikes by year‑end, but Eckhold believes this goes too far, too fast. Westpac’s central case is for just one 25‑point increase in 2026, with more significant tightening pencilled in for 2027 once the growth drag from the energy shock fades.
For borrowers, that suggests a lower probability of aggressive near‑term moves, but less chance of rapid rate cuts if inflation surprises on the upside.
What it means for mortgage rates and borrowing capacity
For first‑home buyers and property investors, the message is one of cautious stability rather than relief. The OCR is likely to stay in the low‑2% range in the near term, but any sign that inflation expectations or wage and price‑setting behaviour are drifting away from target could see RBNZ move faster later.
Eckhold sums it up by saying “no change is very appropriate for now”, but stresses there is “plenty of scope to move quickly once it’s determined that real interest rates closer to more neutral settings are appropriate”.
Read Westpac’s GDP Preview here.
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