The Reserve Bank of New Zealand (RBNZ) is expected to raise the official cash rate (OCR) more quickly compared to previous estimates in 2027 and peak slightly higher at 4.25% in 2028, Westpac said in a Wednesday report.

Westpac said it continues with its longstanding view of a first hike in the OCR to 2.50% in December 2026, but in 2027, the RBNZ will pick up the pace and tighten at each meeting from February to September 2027. The OCR is expected to reach 4% by end-2027 and peak at 4.25% in early 2028, the bank added.

The bank believes that excess capacity will likely be exhausted by early 2027, implying a need for the RBNZ to return the OCR to neutral levels more quickly in 2027, but the RBNZ will take time in 2026 to be sure the recovery takes hold and as headline inflation falls towards 2%.

Wespac expects that interest rates will remain stimulatory for all of 2026 and early 2027 and will drive a need for modestly restrictive conditions over 2028.

The bank continues to assume a neutral OCR of 3.75%; hence, to achieve restrictive levels, the OCR will need to peak at 4.25% in early 2028.