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Bank economists respond to a hawkish RBNZ, picking an OCR hike for August, but opinion remains divided over whether the economy needs cooling just yet

Bank economists respond to a hawkish RBNZ, picking an OCR hike for August, but opinion remains divided over whether the economy needs cooling just yet
Adrian Orr

Economists from ASB, ANZ, BNZ and Westpac believe the Reserve Bank’s (RBNZ) surprise decision to halt bond-buying by next week makes way for an Official Cash Rate (OCR) hike in August.

Previously, they all expected the RBNZ to hike the OCR in November. This was still well ahead of August 2022 - the date the RBNZ in May expected to start hiking the OCR from.

Kiwibank economists haven’t revised their OCR outlook, and see the RBNZ waiting until at least November before lifting.

All the bank economists note forthcoming Consumer Price Index (CPI) and labour market data will be key to the RBNZ’s decision-making.

Confusion avoided

While the RBNZ was on Wednesday expected to provide commentary on how it would wind back its weekly bond purchases via its Large-Scale Asset Purchase (LSAP) programme, it wasn’t expected to signal a halt by July 23.  

ASB chief economist Nick Tuffley said this provides it with “more flexibility” to bring forward OCR hikes, “if needed”.

The general consensus is that the RBNZ should stop bond-buying (which puts downward pressure on interest rates) before it lifts the OCR to avoid confusing the market.

BNZ head of research Stephen Toplis said the RBNZ halting purchases shouldn’t be seen as a “strong signal” a hike is coming in August. Rather, “now there can be no question of mixed messages”.

The bank economists noted the RBNZ’s hawkish tilt, with it dropping the previously used comment that reaching its inflation and employment targets would require “considerable time and patience”.

“It was significant that the “least regrets” approach the Bank has touted throughout the course of the pandemic, now recommends “that the significant level of monetary support in place since mid-2020 could be reduced sooner, so as to minimise the risk of not meeting its mandate”,” Toplis said.

Hikes priced in

ANZ chief economist Sharon Zollner noted markets are now pricing in a 50% chance of an OCR hike for August 18, when the RBNZ releases its next Monetary Policy Statement. Previously, markets saw a 20% likelihood of a lift in August.  

Kiwibank chief economist Jarrod Kerr elaborated on the market reaction: “The all-too-important 2-year swap rate (the rate banks use to hedge a 2-year fixed mortgage rate, and business lending on a same tenor) has been marked 37bps higher to 0.87% in just a few weeks, and has more than trebled since the start of the year (0.265%),” he said.

“The move in shorter wholesale rates has not (yet) been passed onto shorter mortgage fixed rates.

“The mortgage curve has steepened from 3-years and beyond.

“It’s only a matter of time before all rates, especially the 1-to-2-year rates are re-priced higher, to reflect the move in underlying wholesale rates.”

Indeed, ASB jumped the gun on Wednesday morning, lifting its mortgage and term deposit rates ahead of the RBNZ’s Monetary Policy Review.

ASB’s Tuffley said: “It’s a prudent time for households and businesses to review their interest rate exposures, to make sure they are appropriate and start thinking about what higher interest rates mean.”

The New Zealand dollar rose from 69.7US cents to 70.2US cents, on the release of the Monetary Policy Review, and has remained at this level.

The hawks

Interestingly, Zollner maintained there was more inflation and tightness in the labour market than the RBNZ’s commentary reflected.  

“There were some mixed messages in the documents, hinting perhaps at some robust debate in the Committee,” she said.

Her and Toplis were strongly of the view there are real risks the economy could overheat if the RBNZ doesn’t hike the OCR relatively soon.

“Uncertainty certainly remains. However, in the end, you have to react to what you know, not what you don’t,” Zollner said.

“One can always adapt one’s approach, but with so much frothiness in the economy at present, the risks associated with inaction now firmly outweigh the risks with taking action.”

Toplis went even further, saying he believed the RBNZ should “already be in the process of exiting its emergency setting on the OCR”.

The doves

Westpac acting chief economist Michael Gordon, on the other hand, said that while he believes the RBNZ will likely hike the OCR in August, he worries this could be too soon.

“New Zealand is a long way from reaching a satisfactory level of COVID-19 vaccination, and the possibility of border breaches and time spent in lockdowns still looms large,” he said.

“From a “least regrets” perspective, there’s plenty of room for regret if the RBNZ were to start tightening policy now, only to have to provide more stimulus (including, most likely, reopening the bond purchase programme) a few months down the track.”

Kerr took a similar view.

“It’s easy to be too early, and there’s not a great deal of risk to being a little late,” he said.

“Today’s message is consistent with a central bank juggling near term inflation pressures and long-term deflationary forces.

“A rate hike in November is a definite maybe. Although November still feels too early to us.

“Because we are still in the beginnings of our vaccine roll out, and much of the inflation pressure we’re experiencing should be deemed transitory. We need to see a stronger for longer lift in wages growth.”

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I doubt august. This signal alone will push mortgage rates up (almost guaranteed they will all follow ASB now). If he waited to November we would be in a lot safer space WRT Covid.

Imagine a scenario of the old West and fearsome 'gunslinger' Orr rides in to town. I very much doubt people will be hiding behind barrels and putting down their whiskey in the saloon and dropping under the tables with terror.

All assuming no further outbreak of Covid and subsequent lockdowns.
It only tool one Australian tourist for a weekend to shut down the Wellington economy . . . and we were very, very lucky.
RBNZ will be factoring this risk in.

What does a 25bps lower interest rate achieve in that situation though?


That’s the gaping plot hole in this piece of political theatre. You’re not supposed to think about it or the story is ruined. It’s like going to a horror movie and asking, “why is she going alone into the haunted house without a torch in the middle of the night when she just heard a terrifying scream?”

If the RBNZ raises the OCR by any meaningful amount govt bond yields will spike on the secondary market. The RBNZ/govt will poop the bed & start printing money again. Negative real interest rates of 5 plus percent are here to stay. Welcome to the new monetary normal.

That is pretty easy to solve, and that is to close this bubble until everyone is immunized. We are taking a multi billion dollar risk with this bubble, for almost a zero net award. Airlines and airports are the main winners from it.


It will not be this year and definitely not August.

This is all an act - just a perfomance - All under pressure as inflation is going nuts beyond their control and now only way to stop is derailing so when time comes will find excuse to avoid.

So chill and listen to all the commentary as soap opera.

Wait and Watch.

Exactly, it’s all a pantomime.


Any belief that NZ is somehow leading the pack in a global economic recovery, is neither rational or correct.

"in the end, you have to react to what you know, not what you don’t,” Zollner said. Well, quite.

Zen Zollner

You have to react what you know......really.

All data/ news suggests that house price is rising ( what you know)........where is the action......instead is wait and watch.

It should be : you have to react what you know, only if if it suits your narrative or ignore and find excuse and still go after what you not know as that NO ONE KNOWS and can bluff like : have data / information that house price is cooling. Inflation is transitory.........list goes on.


RBNZ and government needs to do something to stop this stupidity our fellow kiwis are doing with housing market and interest rate rise is very important tool to bring sense to a few people.

Do what? The govt wants to pay 1.5% in its debt not 5%.

They have to do something. We canniot afford to have a 1.5 million median house price, the consequences would be a disaster.
The 1.1 million median is already a disaster.

If wages go up we can go to $2m

Property market isn't really an issue. It's wages that are the issue. RBNZ can get wages up.

Sounds like a plan. Maybe they can legislate daily % salary/wage increases into employment law. If we made it a 1% increase hourly rate per calendar day, then someone on minimum wage will be on $750 per hour by day 365. The burden of debt no longer becomes an issue.

For 2 million median the median income would need to be about 150k.
Dont think thats an option.

Where is the money coming from to pay increased wages? Wages in teh building sector seem to be rising a lot, but that is matched by increased material and labour costs, which increase inflation.

Yeah it’s called an inflation adjusted fall in property.

The property market over the last year hasn’t really gone up, it’s just wages and inflation have been suppressed by idiosyncratic factors in positioning in offshore markets.

And yes, property can go to $2m. It can go there while going up, or down, in real terms.

Maybe study a little history

The money comes out of the banking sector

What you fail to realise is the “inflation” you claim isn’t there, actually is. It goes up at a rate correlated to capital gain. So much so property hasn’t actually risen in real terms in NZ over the last 30 years

It’s just inflation has been suppressed due to increases in net foreign liabilities driving up purchasing power in the short to medium term.

It all comes out in the long run or after large shocks. Takes a year or two. Sometimes longer

Took 6-8 years after the wool bust. But it came out alright

If the RB tightens policy, then actual inflation will explode. If they keep printing it will probably just sit at the top part of the band, rather than like a 60-100% jump in prices if they tighten.

And yes before anyone asks, I’m well versed in the textbook theory, but there are reasons I’m saying such counter intuitive things around the common thinking of inflation.

Just need to 6 x the average income, easy

(or have interest rates to offset them)

If you account for interest rates, the property market really isn't that bad.

Just if you don't know what you're talking about, you shake your fist at the market and scream about the rbnz.

Wages are the issue.


And here it is in plain sight - bankers and businessmen panicking at the thought of workers regaining even a tiny bit of power. The banality of capitalist evil. ‘Cool the economy down quick before the plebs start demanding more pay’, they say. ‘Get the RBNZ out of the bond market so that we can get our free money in secret again’.

The problem we have is structural and fiddling with the OCR is irrelevant. We need people gainfully employed in sustainable work that makes a positive difference. Instead we have hundreds of thousands of people sat on the dole or in precarious work - an army of wasted people conscripted to reduce the risk of inflation and give the boomers someone to blame for the ills of the country.

So do you think that this government will get that army of people off the dole and out to work? We've got record job vacancies, and double the people on benefits. Seems to be going the other way......

Why strive when the goal is unobtainable?

For incentives to work they need to be realistic.....they have broken the model.

ASB has prompted/forced RBNZ's hand today, by hiking the rates. Like they did with the hike in LVR for investment properties a while ago. Whose agenda is being played out here ? Is the inflation really there or that bad, warranting a rate hike ? Or are we dancing to the drum beat of vested interests here and overseas ?
They are inviting the Wolf, surely ? The Pandemic has not played out yet fully, so throttling the economies with rate hikes seems a premature move, unless other agendas are involved.

if they go too late they will need to raise the rates higher than the housing market will stand....

your question about is inflation really there...??

you don't think we are different do you?

Here, only the house prices are on an inflation trend.

i went to buy some brazil nuts at countdown today from the pickamix isle..

were $4 per 100gms, now $6.50

just saying

Were they in those perspex containers? You know the ones you can see through.
Doesn't count then.

Brazil nuts are always expensive, I just get the 400gm Deluxe Nut mix from Mother Earth for like $10, its a nice mix of nuts just like you find here on

I find a lot of the nuts round here to be rather bitter..

If you think you're going to get a bargain at Countdown you're dreaming mate.

Then I guess you haven't shopped recently.
Players in my category (basic grocery items) have all lifted pricing by more than 10%, last market player about to move. That isn't enough to cover the higher costs of buying product or getting it to NZ.

Look elsewhere:
Butter went up 50c (10%)
Milk 8% price increase a couple of months ago. Expect dairy to go up again with global dairy prices
Steel up 25%+
Timber up
Labour costs up
Fasteners up over 10%
Shortages and unavailability will lift prices for at least another year

Ocean freight has gone up by 400% and is still climbing. And that is if you can get a container on a boat at all.

Now is not the time to play Ostrich............

Fuel has risen a lot.
The barber I go to has gone up 10% in the last year.
Many Asian food places are now selling dishes
for $16-17 rather than $14-15
Rates up
Public transport fares up

rep I am seeing prices of some of my items up 25%.
everyweek I see another item go up.

Something needs to be done before spring/summer, the property market can't continue to be as hot as it has & reach higher peaks. I suspect banks might also be worried about the true value of property they hold on the books.

Yeah Nah. Property will be a good hedge against the coming inflation.

Inflation in housing has already happened, consumer goods now just catching up. I don't expect housing to provide any further hedge. Try gold.

No see if it goes up in an inflationary environment, then it was a hedge, if it flatlines during QE then it's referred to as gold.


Westpac are on the right path. Bit to soon with covid uncertainty. OCR hike. 25 end of this year then another. 25 first quarter next year. ASB have done themselves no favours.

I'm not sure that I agree with Westpac or your reasoning, but I suspect the path of RBNZ action is going to be what they do.
Easy to stop money printing, but not so easy to actively brake the market and the politics of getting that wrong will be too much.
I suspect ASB has done the right thing, but OCR won't move yet.

The ASB are smart, the rise is coming anyway and they have a chance to pull in deposits from other banks by raising TD's before the rest.

I wish people would understand these rates are not so much going high, they are moving back from the emergency OCR 0.25 when lt was the end of the world last year. Mortagage/Deposit rates are 'normal' at 3 to 5%.
Worrying about 'high' rates starts when morgages go over 4.5%.
We are no where near 'high' rates.

Weeeeelll, that depends on how much debt you're carrying.

For everybody who is saying interest rates wont rise and why cant the RBNZ leave well enough alone.

I'll just leave this here - if the first paragraph doesnt define NZ as it is now- then nothing will.

"triggered by consumer wealth"
Just the effect they wanted but with no idea how to deal with it when they finally see it for what it is.

My favourite quote on Economists : An Economist is one who sees what works in practice and goes on to find out whether it works in Theory also.

A good read, ikimpaul, thank you.

Agreed. This link indicates too much borrowing can be both a source and sign of overheating (certainly applies to NZ). This can lead to asset bubbles, notably in housing markets (certainly applies to NZ), but also stock markets as well (more so in the US). It also suggest that Govts only real option to address overheating is to increase interest rates. Weirdly its the banking sector that leading that messaging in NZ, not the RB.

The lemming herd now shuffling to new consensus
Inflation well ahead of them as usual
Sweeties no longer increasing in dosage but tritating
GDP forecasts will be next on the transitory theme as they are cut too or revised down
Economic anaesthetic for CV19 now being withdrawn and all is not fine

Kiwibank chief economist Jarrod Kerr elaborated on the market reaction: “The all-too-important 2-year swap rate (the rate banks use to hedge a 2-year fixed mortgage rate, and business lending on a same tenor) has been marked 37bps higher to 0.87% in just a few weeks, and has more than trebled since the start of the year (0.265%),” he said.

Time to reverse the panic related 75bps OCR cut implemented on 16 March 2020.


Yep its time it went back to 1.0% overnight at the same rate of speed it dropped, but will it ? Pressure is mounting for November. Not sure that even Orr can continue to dodge this many bullets.

I agree the OCR should be at least 1.0 % and now.
The economy is red hot.

I wonder if the bank economists have considered that the RBNZ may wait until November, and then raise by 0.50%?

August is just too soon with COVID risks still in the wings.

If I'm a marginal FHB that is holding on to a pre-approval right now, I would act instantaneously- before the bank finds an excuse to invalidate it. Doesn't matter if I can't get a "ideal house" right now, it'll be easier to upgrade when I'm in the market than outside the market. No one likes a shifting goal post and all that pain and effort in scrapping up with a home deposit shouldn't be forgone due to personal indecisiveness.

Be quick.


There is so much downside risk, those planning to sell in the next 10 years should be quick.

I think we can all agree that "bank economists", are full of sh*t and don't know their arse from their elbow.