RBNZ to Follow a Gradual Hiking Path into 2027, Says TD Securities

TD Securities projects the Reserve Bank of New Zealand (RBNZ) will pursue a gradual interest rate hiking path that extends into 2027, according to a recent analysis. The forecast reflects persistent inflationary pressures and a resilient labor market, suggesting the central bank will proceed cautiously rather than with aggressive moves.

Why a gradual path?

The RBNZ has signaled that while inflation is easing, it remains above the 1-3% target band. TD Securities notes that the central bank is likely to prioritize stability, avoiding sharp rate hikes that could disrupt economic growth. The gradual approach allows policymakers to assess the impact of previous increases and adjust based on incoming data.

New Zealand’s economy has shown mixed signals—GDP growth has slowed, but employment remains robust. This duality supports a measured tightening cycle, as the RBNZ balances controlling inflation with not stifling the labor market. As of early 2025, the official cash rate (OCR) stands at 5.5%, and markets have priced in modest increases over the coming years.

Market expectations and investor implications

Investors and analysts are closely watching the RBNZ’s communication for clues on the pace of hikes. TD Securities’ view aligns with market pricing that suggests a peak OCR of around 5.75% by mid-2026, followed by a plateau into 2027. This outlook contrasts with earlier expectations of rate cuts, reflecting the central bank’s commitment to quelling inflation.

For borrowers, this means mortgage rates may stay elevated for longer than previously anticipated. Conversely, savers could benefit from sustained higher returns on deposits. Currency markets may also react, as a gradual hiking path could support the New Zealand dollar against major peers.

What this means for the economy

The prolonged tightening cycle is likely to weigh on consumer spending and business investment, potentially slowing growth to below trend. However, the RBNZ’s cautious stance aims to achieve a ‘soft landing’—curbing inflation without triggering a recession. This delicate balance is crucial for New Zealand’s economic stability and global investor confidence.

Conclusion

TD Securities’ forecast underscores the RBNZ’s data-dependent approach, with a gradual hiking path into 2027. While uncertainties remain, the central bank’s strategy appears designed to navigate persistent inflation while supporting economic resilience. Stakeholders should monitor upcoming economic indicators and RBNZ statements for further guidance.

FAQs

Q1: What is the current official cash rate in New Zealand?
As of early 2025, the OCR is 5.5%. The RBNZ has kept it steady recently, but further hikes are possible based on inflation data.

Q2: How long will the gradual hiking path last?
According to TD Securities, the path extends into 2027, with potential peak rates around 5.75% by mid-2026, followed by a plateau.

Q3: How might this affect mortgage rates?
If the RBNZ hikes gradually, mortgage rates may remain elevated for longer, impacting new borrowers and those on floating rates. Fixed-term borrowers may lock in current rates before potential increases.