Kiwibank says the Reserve Bank should hold off on further interest rate increases, even as its economists expect the official cash rate (OCR) to rise again next week.
According to a report by 1News, the Reserve Bank lifted the OCR from 2.25% to 2.50% in July, marking its first rate increase in three years. Kiwibank expects another 25-basis-point increase to 2.75% next Wednesday, followed by a further rise to 3% later this year.
However, Kiwibank economists argue that monetary policy should remain "stimulatory" for now to support the economy.
"The economy needs support, and inflation pressures should ease from here," it said, 1News has quoted.
The bank pointed to rising unemployment and underemployment, subdued wage growth of around 2% and weakness in the housing market as reasons for the Reserve Bank to avoid further tightening at this stage.
"If it were up to us, we would have left the cash rate at 2.25%, and look to commence tightening after the election," as quoted by 1News.
Kiwibank also highlighted uncertainty caused by the war in the Middle East, saying businesses had delayed or cancelled projects while households had reduced spending. The economists said economic activity could have contracted during the June quarter.
"The economic recovery has hit yet another speed bump," the Kiwibank economists said, 1News has reported.
"It is simply too early to assess the inflationary pulse, and the likely unwind. It is too early to gauge the impact on demand. And it is too early to see the adverse effects in the labour market, 1News has quoted.
"Therefore, it is too early for the RBNZ to hike."
Westpac is also forecasting a 25-basis-point increase next week, followed by another hike later this year that would take the OCR to 3% by the end of 2026.
According to 1News, unlike Kiwibank, however, Westpac expects the tightening cycle to continue into 2027, with the OCR potentially reaching 4% as the Reserve Bank seeks to bring persistent underlying inflation back towards its target.
Westpac chief economist Kelly Eckhold said the economy appeared to be regaining momentum after a challenging period, with growth forecast at 2% this year and 3% in 2027.
"However, core inflation has now sat above the 2% midpoint of the RBNZ’s target band for five years, and headline inflation is expected to stay above 3% until mid-2027 before briefly dipping below 2% as fuel effects drop out," he added, as quoted by 1News.
"The underlying pressure on prices has proven persistent, and the Reserve Bank will need to manage that carefully," 1News has quoted.