The Reserve Bank is all but certain to hike the Official Cash Rate again this afternoon, economists say, even as one major bank breaks ranks to warn the economy is too soft to take it.
The decision, due at 2pm alongside the bank's September Monetary Policy Statement, will follow a hike delivered in July and is expected to take the cash rate to its highest in over a year.
The Official Cash Rate is the Reserve Bank's main tool for controlling inflation, and it filters down to households through the rates banks charge on mortgages and loans.
By lifting it, the bank makes borrowing more expensive, which is designed to cool spending and ease price pressures - but it also means higher repayments for households rolling onto new mortgage rates, and better returns for savers. It is reviewed eight times a year.
It's all people are talking about, but what is the OCR and how does it impact the lives of New Zealanders? (Source: 1News)
What economists expect
Economists are largely in lockstep about the second straight hike, but they say it matters less than what the bank signals about the months ahead.
ANZ chief economist Sharon Zollner said the central bank was likely to keep its options open.
"We expect a 25bp hike in the OCR on Wednesday 2 September, taking it to 2.75%, accompanied by an OCR track that suggests that a third 25bp rate hike in October is roughly 50/50 odds," she said.
She said the market was pricing more than a 90% chance of a hike today but remained "on the fence" about a follow-up in late October, meaning any firm hint could move rates sharply. Zollner said ANZ read the run of data since July as "mildly dovish".
ASB senior economist Mark Smith described the decision as a straightforward one for the bank's Monetary Policy Committee.
"With a full 25 basis point hike close to fully priced in by financial markets, we expect the Reserve Bank of New Zealand (RBNZ) to take the path of least resistance and to hike the Official Cash Rate (OCR) by 25bp to 2.75%," Smith said.
Smith said the bank would likely flag more tightening to come.
"We also expect the RBNZ to affirm more tightening is to come, with a higher OCR deemed necessary to deliver 2% inflation on a sustained basis."
BNZ went further than most, forecasting hikes at both the October and December meetings and a peak in the cash rate track of around 3.3% in the September quarter of 2027.
Not everyone's convinced
However, not every forecaster was comfortable with the direction. Kiwibank, in commentary ahead of the decision, said it expected the hike but did not believe it was warranted.
"We expect the RBNZ to continue hiking the cash rate from 2.50% to 2.75%. But don't get it twisted, we don't think it's the right move, just the most likely one," the bank said, pointing to an uneven recovery.
"We have an uneven recovery and cost pressures are hurting regular Kiwi."
The bank is tightening because inflation, at 4.1%, remains well above the 2% midpoint of its target band.
Complicating the picture is the November 7 general election, which sits just 10 days after the October meeting and has fed debate over whether the bank would prefer to move in December instead.
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