ASB has reversed its forecast for the Reserve Bank's next move, now expecting the Official Cash Rate to be held at 2.25% on 8 July 2026 rather than increased.
The bank's senior economist Mark Smith said ASB expects a split vote at next week's OCR review, with the shift driven by reduced geopolitical risk and the view that internal Monetary Policy Committee members will not yet be ready to shift position. "Recent US-Iran developments, while fragile and uncertain, appear to be consequential," Smith said. "They look to have reduced upside risks to NZ medium-term inflation by lowering the risk of sustained cost shocks filtering through into wider price and wage settings."
In May, the 3 external MPC members voted for a 25 basis point increase while the 3 internal members voted to hold, with Governor Anna Breman using her casting vote to secure a hold. Smith said those internal members "will want to wait for more confirmation of potential medium-term inflation impacts before deciding to move the OCR. We think this hurdle, at its earliest, can be cleared by the September Monetary Policy Statement."
ASB now forecasts the RBNZ will begin a sequence of 25 basis point hikes starting in September 2026, with the OCR reaching 3.0% by year-end and peaking at 3.25% by early 2027. The Reserve Bank has 4 reviews of the OCR scheduled this year, in July, September, October and December.
Smith said the inflation outlook has shifted materially since May. "The outlook for NZ inflation has changed meaningfully since the May Monetary Policy Statement (MPS)," he said. "It is still early days, and much can happen, but the US-Iran Memorandum of Understanding looks to have been a consequential development that has significantly tempered the uplift and duration of high oil prices." If sustained, lower oil prices could push annual CPI inflation temporarily below 2% in mid-2027, ASB said.
Annual inflation stood at 3.1% in both the December 2025 and March 2026 quarters, just above the RBNZ's 1-3% target band. Economists expect inflation to exceed 4% in the June 2026 quarter.
Other banks remain split on the July call. UBS economist Stephen Wu said UBS expects the RBNZ to increase the OCR in July, arguing "the case for early and pre-emptive hikes is that inflation is too high, and hence monetary stimulus needs to be removed." Westpac economists concur with ASB that the RBNZ will hold the OCR at 2.25% in July, forecasting tightening to begin in September with one further hike in December. ANZ economists Matthew Galt and Sharon Zollner said an OCR hike is no longer as certain as it previously appeared but is still expected in July.