Major Banks Forecast October OCR Hike to 3% as House Price Outlook Softens

Executive Summary

New Zealand’s major trading banks have shifted their forecasts to expect a 25-basis-point increase in the Official Cash Rate to 3.00% at the Reserve Bank’s 28 October policy review, spurred by resilient core inflation and currency depreciation. Simultaneously, leading economists have downgraded property forecasts, projecting national home values to continue drifting lower through mid-2027 as higher borrowing costs suppress demand.

Key Takeaways

• October OCR Hike Expected: Economists at ANZ, ASB, BNZ, and Westpac now expect the Reserve Bank of New Zealand (RBNZ) to lift the OCR by 25 basis points to 3.00% on 28 October, with financial markets pricing an 80% to 90% probability of an increase.
• Underlying Inflation Pressures: While headline inflation slowed to 3.7% in the September quarter from 4.1% in June, higher core inflation measures, elevated oil prices, and a softer New Zealand dollar have triggered hawkish policy revisions.
• House Price Forecasts Downgraded: ANZ lowered its property price outlook, forecasting values to fall 2% across 2026 and an additional 1% in 2027, with stabilization delayed until mid-2027.
• First-Home Buyers Expand Share: Cotality data reveals first-home buyers accounted for a record 29.5% of purchases in the third quarter, even as national transaction volumes dropped 14% year-on-year.

Market Breakdown

Monetary Policy: Major Banks Align on Impending Rate Hike

Expectations for the RBNZ’s 28 October Monetary Policy Review have hardened significantly. ANZ, ASB, BNZ, and Westpac have all forecast a 25-basis-point hike to 3.00%. Westpac, which previously predicted the central bank would hold until December, revised its stance following the third-quarter inflation print, noting concerning underlying details beneath the 3.7% headline figure. Westpac now forecasts the OCR will reach 3.50% in February 2027, peaking at 4.00% by September 2027. ANZ similarly projects three consecutive 25-basis-point hikes to bring the benchmark rate to 3.50% by March 2027.

A contrasting perspective remains among Kiwibank economists, who argue that domestic economic conditions do not warrant additional tightening. They point out that household spending power is already constrained by non-discretionary costs such as fuel, electricity, and local council rates, limiting the ability of domestic businesses to pass on further price increases.

Property Market: Price Corrections Extended Through Mid-2027

Higher interest rates continue to weigh on residential real estate activity. In its October Property Focus report, ANZ adjusted its forecast from a 1% decline in 2026 to a 2% contraction, reversing an earlier forecast of a 2% rise in 2027 to a projected 1% drop. The Real Estate Institute of New Zealand (REINZ) House Price Index fell 0.3% on a seasonally adjusted basis in September, marking its fourth consecutive monthly contraction.

Regional divergence remains noticeable. Data from Cotality indicates that national property values declined 1.3% in the year to September, leaving values more than 18% below their previous peak. Auckland property values fell 3.1% to 3.2% year-on-year, and Wellington dropped 4.4%. Conversely, Christchurch bucked the downward trend, recording an annual increase of 3.4%. National sales volumes fell approximately 14% year-on-year in September to 6,519 transactions.

Mortgage Repricing and Borrower Dynamics

Borrowers rolling off existing fixed-rate contracts face higher financing costs. Cotality reports that prevailing renewal rates sit between 4.97% and 5.27%, noticeably higher than the existing mortgage book average of 4.80%. Despite tighter conditions, first-home buyers achieved a record 29.5% share of total market purchases in the recent quarter, leveraging higher listing inventories and reduced competition from investors.

Summary

With major banks projecting the OCR to rise to 3.00% next week and potentially reach 3.50% or higher by early 2027, floating or opting for short six-month terms exposes borrowers to immediate repricing risk. For homeowners seeking payment stability, fixing for two to three years offers a pragmatic approach to hedge against further official rate increases, especially given that multi-year fixed terms currently carry minimal premium over one-year rates.