Westpac Sees RBNZ Holding OCR, Nudging First Rate Hike to December 2026
•February 10, 2026
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Why It Matters
A sooner hike signals that the RBNZ may begin tightening earlier, influencing NZ dollar valuations and borrowing costs for businesses. The modest pace reassures markets while keeping inflation expectations anchored.
Key Takeaways
- •RBNZ to hold OCR at 2.25% in February.
- •First rate hike now expected December 2026.
- •Inflation above target but trending downwards.
- •Dovish messaging to avoid market shock.
- •June 2027 OCR could reach up to 3.0%.
Pulse Analysis
The Reserve Bank of New Zealand has been navigating a delicate balance between curbing inflation and supporting growth. Recent data show price pressures easing, especially in food and fuel, while the economy retains excess capacity. This backdrop, combined with a more benign global financing environment, gives the RBNZ room to keep the Official Cash Rate steady at 2.25% for now. Analysts, however, watch closely for any shift in the inflation trajectory that could prompt a policy response sooner than the traditional cycle.
Westpac’s revised timeline—pushing the first rate increase to December 2026—signals a modest acceleration in the tightening path but stops short of a hawkish pivot. For investors, the implication is a potential appreciation of the New Zealand dollar as markets price in earlier, albeit limited, rate hikes. Corporate borrowers may see a gradual rise in financing costs, prompting firms to lock in longer‑term funding before rates climb. Compared with peers such as the Reserve Bank of Australia, which has already begun tightening, the RBNZ’s measured stance underscores divergent regional monetary dynamics.
Looking ahead, the forecast of a 2.85‑3.0% OCR by mid‑2027 suggests the RBNZ will adopt a data‑dependent approach, adjusting rates only as inflation consistently approaches the 2% target. Risks remain, including unexpected commodity price spikes or a slowdown in global demand that could reignite inflationary pressures. Businesses should monitor the central bank’s messaging for cues on credit conditions, while investors might consider the timing of rate moves when evaluating equity and bond exposures in New Zealand’s market.
Westpac sees RBNZ holding OCR, nudging first rate hike to December 2026
Westpac expects the RBNZ to hold rates steady while modestly bringing forward its first projected hike, without signalling a more aggressive tightening path.
Summary:
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RBNZ expected to hold OCR at 2.25% at its February 18 meeting
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First hike forecast brought forward to Dec 2026
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Inflation acknowledged as too high
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Forecasts still point to gradual disinflation
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Messaging likely to remain dovish
The Reserve Bank of New Zealand is expected to keep its policy settings unchanged at its February meeting, while modestly bringing forward the timing of its first projected rate increase, according to a new research note from Westpac.
Westpac expects the RBNZ to leave the Official Cash Rate at 2.25%, while signalling that the first hike could arrive in December 2026, slightly earlier than previously projected. Such a shift would imply only a marginal upward revision to the Bank’s average OCR forecast for the December quarter, rather than a material change in the policy outlook.
The bank anticipates policymakers will acknowledge recent signs of stronger economic momentum and a more supportive global backdrop, while continuing to emphasise that inflation remains above target. However, Westpac argues the RBNZ is unlikely to lean aggressively hawkish in its messaging.
Instead, the central bank is expected to highlight ongoing excess capacity in the economy, tighter financial conditions, and easing price pressures from food and fuel costs. These factors are likely to underpin a forecast path showing inflation gradually moving back toward the 2% midpoint of the target band, reducing the need for a rapid return to more neutral interest rate settings.
Looking further ahead, Westpac sees scope for the RBNZ to revise up its June 2027 OCR forecast by around 40–50 basis points, to roughly 2.85–3.0%, from the 2.45% track published in November. Even so, this would still represent a cautious and gradual tightening profile rather than a decisive pivot.
Overall, Westpac expects the RBNZ to avoid “scaring the horses” by pushing back aggressively against market pricing for future rate increases. Instead, policymakers are likely to strike a relatively dovish tone, reinforcing a view that any eventual tightening cycle will be measured and data-dependent.
This article was written by Eamonn Sheridan at investinglive.com.
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