Economists split on potential OCR rise

RBNZ faces line ball call on whether to raise official cash rate (OCR)

Economists split on hold or a raise; financial markets bet 75 percent on raise

Fall in oil prices, improved consumer and business sentiment point to recovery

Hawks argue there is a need to get on top of inflation as soon as possible

Doves argue the inflation threat is receding, and the economy needs more time to recover

OCR been at 2.25 percent since November 2025; last raised in April 2023

Decision due 2pm on Wednesday 8 July

The Reserve Bank (RBNZ) faces a line ball call on whether to raise its benchmark interest rate for the first time in more than three years as oil prices fall back to pre-Middle East war levels, lessening the impact on inflation.

Economists are split on whether the Monetary Policy Committee (MPC) will hold the official cash rate (OCR) steady for a fourth consecutive meeting tomorrow or raise it by 25 basis points to 2.5 percent.

The rate was held in May on the casting vote of the Governor Anna Breman after the committee split three-three between raising and holding.

ANZ chief economist Sharon Zollner said the RBNZ had been indicating raises for the OCR before the end of the year.

"The key issue is that monetary policy remains stimulatory, the NZ dollar is softer than assumed, and medium-term inflation risks have not disappeared."

She said the OCR was too low and as the economy picked up pace it needed to be returned to neutral territory - a "Goldilocks" level where it was neither stimulating the economy nor tapping the economic brakes.

That level is currently estimated at somewhere around 3.25 percent.

Zollner said the central bank needed to get started in controlling inflation and a "neutral to dovish hike", in which it raised but was noncommittal about what would come next would set the tone.

"We think it would be easier for the Committee to keep control of the narrative and therefore overall monetary conditions if it gets this hiking cycle on the road."

BNZ head of research Stephen Toplis agreed a rate rise was needed now, perhaps even more so since the Middle East conflict has eased.

"It shouldn't be forgotten that prior to the war, inflation concerns were already building and there was a strong argument for higher interest rates even without an oil price shock."

"We think the RBNZ would lose some credibility were it not to raise rates in July. After all, half the committee wanted a rate increase at the last meeting and both they and the other half confirmed they were comfortable with at least three rate increases before the end of this year."

Let the economy get off its knees

Economists at Westpac and ASB, previously backers of a July rate rise, pushed out their calls to September.

"Much has changed over the past six weeks. Therefore, while three MPC members had voted for a rate hike in May, we think the 'on hold' decision may well be reached by consensus," Westpac chief economist Kelly Eckhold said.

Kiwibank maintained its vociferous stand against any rate rise this year, with chief economist Jarrod Kerr saying an increase risked sending the economy back into recession.

"That may be a bit alarmist ... but the economy needs space to get up off its knees."

Kerr said the war had knocked economic recovery off track, and significantly dented consumer and business activity.

He said inflation would likely peak just above 4 percent in the just ended June quarter and then start to decline back to the RBNZ's 1-3 percent target band, while there were no signs of wage inflation.

"The RBNZ has pivoted from having 'ice in the belly', to fire in the belly. We prefer ice. We believe this supply shock should be looked-through. There is sufficient disinflationary force from stifled demand and weak wage growth."