Reserve Bank’s Goal for the New Year

The Reserve Bank’s departing temporary Governor, Christian Hawkesby, expressed his desire to see the bank "off the front pages" in the coming year. This statement was made during his final Official Cash Rate (OCR) media conference before handing over the reins to incoming Governor Anna Breman.

Economic Prospects for 2026

Hawkesby spoke encouragingly of the prospects for next year, citing the bank’s actions, including the 50 basis point cut in October, which was designed to mitigate the risk of households and businesses being excessively cautious. He believes that the economy is coming out of a challenging period, with many of the global uncertainties being resolved.

OCR Cut and Forecasts

The Reserve Bank cut the OCR to 2.25% from 2.50% and indicated that this was likely the last cut unless something unexpected happens. The set of forecasts in the new RBNZ Monetary Policy Statement (MPS) released on Wednesday gave a low point for the OCR of 2.20% in June 2026. Hawkesby stated that this new forecast track would be consistent with the OCR being on hold throughout 2026.

Economic Indicators

Despite the sharp 0.9% drop in GDP figures for the June quarter, Hawkesby said there were "a lot of one-off factors and statistical quirks" in the figures. He believes that the economy is picking up, with signs of both consumer spending and the labor market improving. Hawkesby cited a whole host of small indicators that collectively give him confidence that the recovery is happening right now.

House Prices

In its latest forecasts, the RBNZ is forecasting house prices will rise just 0.2% in 2025, a slight improvement on the last forecast in August. However, the forecast for next year has been trimmed very slightly, down from a 3.9% forecast for full year 2026 made in August to a new forecast of 3.8%. Hawkesby said that it is expected house prices will grow roughly in line with income growth over the next few years.

Fixed Mortgage Rates

With the likelihood of the OCR now going on hold, there were questions asked about fixed mortgage rates. Hawkesby said the RBNZ is "not going to direct the banks on where to set their rates." Assistant Governor Karen Silk stated that banks are the ones that make the choice on this, taking into account their own funding position and other factors.

Bank Margins

Silk discussed bank margins, stating that the mark-up on home loan rates is back to historic levels. She believes that there is room for a competitive environment to bring them lower, with the average yield on mortgage books expected to fall further to 4.7% by September 2026 based on current market pricing.

Conclusion

In conclusion, the Reserve Bank is optimistic about the prospects for 2026, with inflation falling towards the 2% target and economic activity recovering. The bank’s goal is to be "off the front pages" and let the economy drive itself, with the OCR on hold and house prices growing in line with income growth. With the new Governor Anna Breman taking over, it will be interesting to see how the bank’s policies and forecasts play out in the coming year.