Mortgage rates have already started rising and inflation is above target – so when the Reserve Bank delivers its first interest rate decision for 2026 today, what it says about the future will matter far more than the number itself.
The official cash rate (OCR) will stay at 2.25%. On that, there is little disagreement.
But the outlook from Governor Anna Breman's first monetary policy statement is expected to mark a shift in tone, signalling the era of rate cuts is over and the next big moves will be up.
It is a turnaround from November, when the Reserve Bank delivered what has turned out to likely be its final rate cut. Weeks later, financial markets had pivoted, wholesale rates rose, and banks began pushing longer-term mortgage rates higher.
Today's 2pm cash rate decision comes with annual inflation sitting at 3.1% in the December quarter – just outside the 1-3% target band.
Breman takes up the position amid concerns that rising mortgage rates could have an impact on the NZ economy. (Source: 1News)
BNZ research head Stephen Toplis said the data left little room for doubt.
His bank was expecting the first rate hike in September – the most aggressive call among the major banks – although it doesn't expect the Reserve Bank to flag it today.
"Even with only modest growth, there are worrying signs that inflation is not as dead as one might expect it to be," Toplis said in the bank's markets outlook.
ANZ chief economist Sharon Zollner wrote in her bank's preview she expected the central bank to tread carefully to avoid fuelling expectations further.
She said the Reserve Bank would likely be "happy with no market reaction at all" and expected its forecasts to imply a rate hike was more likely than not by year-end.
What it means for mortgages
The Reserve Bank's rate outlook matters beyond the OCR itself as it shapes where banks set their mortgage rates, particularly for borrowers locking in for a year or more.
Fixed mortgage rates have already risen since November, with longer-term swap rates up around 50 basis points since the last decision, according to BNZ – a sharp reversal for property owners who had enjoyed months of successive falls.
Westpac chief economist Kelly Eckhold said he expected a first hike in December, but once the tightening cycle began, it would move fast – with rate increases at every meeting through the first half of 2027.
"We don't think the Reserve Bank will be trying to scare the horses into pushing for an earlier start to tightening than markets have already priced," Eckhold wrote.
ASB economist Wesley Tanuvasa wrote it'd "be interesting to see how governor Breman characterises the data during her debut against the New Zealand inflation dragon".
"Her push for increased transparency may result in monetary policy committee members’ views being teased out more in the record of meeting, and we look forward to more openness as 2026 unfolds."
While the Reserve Bank would be "stern in its messaging" on inflation, Tanuvasa said it could point to enough weak spots in the economy to justify waiting. ASB expected the OCR to rise by December and eventually peak at 3.25% from late 2027.
"Although OCR hikes could occur earlier, the Reserve Bank will be cautious in what it signals this early in 2026," Tanuvasa said.
"The muted housing market recovery, gradual domestic consumption growth, tempered migration and lower wage inflation mean there is evidence that disinflationary pressure remains, just less so than in November."
'Too punchy, and premature'
Not everyone shared the urgency.
Kiwibank chief economist Jarrod Kerr argued the market had got ahead of itself, saying pricing of almost two hikes this year was "too punchy, and premature".
He said the recovery remained fragile, comparing it to "doing the 400 metres hurdles with a broken leg in cast".
"The economy is not yet taking off, and a year from fully recovering," Kerr said.
"It's way too early to claim victory over the recovery."
Kerr said inflation would ease to 2% through 2026 without rate hikes. He called for the Reserve Bank to point to a first increase in early 2027, not this year.
"Do we need higher rates? No, not yet. Give it time," he wrote.
New governor in the spotlight
Today's 2pm announcement will be followed by a media conference, with Breman appearing before Parliament's finance select committee on Thursday.
It comes after a period of turmoil for the Reserve Bank that saw Governor Adrian Orr and chairman Neil Quigley resign. (Source: 1News)
In her first one-on-one interview since taking the role, Breman told 1News in December that banks hiking mortgage rates so soon after the central bank had cut the OCR "risks putting a dampener on New Zealand's economy".
She said at the time her focus was squarely on inflation, which she expected to drop from around 3% to closer to 2% by mid-2026.
"I will be relentless in reminding everyone why this is important and why it's so hard to get healthy growth in a strong labour market unless you have low and stable inflation."
That inflation outlook has since been tested by the December quarter's 3.1% reading, released in late January.
International bank ING noted in an analysis that Breman had tended to sit on the dovish side during her time at Sweden's Riksbank – but said her speeches since starting at New Zealand's Reserve Bank had "not been particularly dovish".
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