A bank economist says tomorrow's rate hike call from the Reserve Bank will be a "nail biter" as forecasters are split on whether the official cash rate (OCR) will be hiked.
The Reserve Bank's monetary policy committee reviews the OCR on Wednesday, and big bank economists are divided on whether it will lift the rate from 2.25% or hold it steady.
ANZ, which described the outcome as a "nail biter", expects a 0.25% hike to 2.50%, while Kiwibank economists say the right decision is to hold, but a lack of consensus about the decision means it was time for trainspotters to "get your popcorn".
ASB and Westpac economists also expect a hold, while BNZ picks a 0.25% hike.
ANZ chief economist Sharon Zollner said a sharp fall in oil prices had made the call more finely balanced, but that the case for lifting rates remained.
"The key question is not 'why would they hike?' but rather, 'what is the appropriate level of the OCR?' To our mind, an OCR of 2.25% is too low to balance the risks around medium-term inflation," she said.
Zollner said, in uncertain times, "it's all about risk management" and that, with the OCR still below neutral, it was "sensible to get a hike under the belt", despite oil price falls.
But she said the Reserve Bank could still move cautiously, lifting the rate while staying "very noncommittal about what comes next in a 'less is more' statement, given there's little to be gained from sounding more certain than warranted".
While the banks disagree on timing, most agree the Reserve Bank's next move in the OCR is up, with the debate centred on whether to start now or wait until September.
The OCR is the Reserve Bank's benchmark interest rate, which influences the cost of borrowing across the economy – including mortgage and savings rates – and is the central bank's main tool for keeping inflation within its 1% to 3% target band.
A higher OCR typically flows through to higher borrowing costs for households and businesses, dampening spending and taking pressure off prices.
Holding the rate leaves those settings unchanged.
Household picture is clear
Meanwhile, ASB senior economist Mark Smith, who previously worked under ex-governor Adrian Orr, invoked one of his old boss' descriptions of setting policy during an economic shock.
"He used to describe monetary policymaking during an economic shock a bit like 'jumping at a crocodile in a dimly lit room'," Smith said.
"There may very well be an inflation crocodile in the room ... but we think governor [Anna] Breman will want to see the teeth of the crocodile first.
"And she will have very little in the way of clear information, either on the inflation or activity front, before Wednesday."
For households, he said, the bigger picture was clear.
"For you at home, what matters is that interest rates are likely to go higher this year."
Kiwibank chief economist Jarrod Kerr, who also backs a hold, said the oil price spike now looked temporary. Kerr's team has long been dovish about the need for any more hikes.
"Interest rates should be held to allow the economy to recover. There's no need to jump at shadows," he said.
The bank's economists said in an update briefing that the "lack of consensus" among forecasters "will make Wednesday’s announcement particularly interesting".
"While the December 2025 and March 2026 data painted a rosier picture of the economy than many were expecting, the Kiwi economy was lukewarm at best.
"And we’re certainly not boiling. The demand destruction caused by the oil crisis in the second quarter only amplified that tepidness.
"Consumer confidence may have increased in June, but it still remains negative and well below historical averages. House prices continued to slide in June, with a 0.2% decline for all of New Zealand and a 4.3% decline in Auckland.
"This will leave Kiwi homeowners feeling less wealthy and therefore less eager to spend."
Westpac also expects a hold, and chief economist Kelly Eckhold said the easing of Middle East tensions and the drop in oil prices had "materially reduced inflation risks".
The bank said it was "entirely plausible that a formal vote on raising the OCR may not be required at the July meeting", and that if a vote did take place, "we expect only a small minority to support an immediate increase".
But BNZ head of research Stephen Toplis took the opposing view, saying the bank needed to move rates towards neutral without delay.
"Interest rates need to be raised towards neutral as soon as possible," he said.
"Only when neutrality is achieved should it contemplate pausing."
The Reserve Bank will announce its decision at 2pm tomorrow, alongside a statement setting out the committee's reasoning. The review is one of seven scheduled for the year, and the September decision will come with a full monetary policy statement, including updated forecasts for inflation, growth and the OCR track.
After Wednesday, there will be three more OCR decisions before year-end.
Whatever the committee decides, banks are not obliged to move their retail rates in step – alhough mortgage and deposit rates typically follow the OCR's direction over time.
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