This is not the rate hike for Nicola Willis to worry about - but the next one could be

Thursday, 9 July 2026

ANALYSIS: Time to take their foot off the gas.

That was the way Nicola Willis described the first rate rise from the Reserve Bank in three years on Wednesday afternoon, as Anna Breman and co “essentially easing their foot a little bit off the accelerator that has been in place in the New Zealand economy in recent months”.

She was accurately describing the Reserve Bank’s view that its official cash rate has been broadly stimulatory to the economy.

But many in New Zealand might be wondering if the car is just revving in neutral. Growth per capita is as stalled as a learner driver at a green light. The 163,000 unemployed at the end of the March quarter aren’t moving either. The businesses still waiting for consumer spending to properly rebound and the 46% of Kiwis who told ANZ they are worse off now than they were at this point last year don’t seem to rocketing ahead.

Read more:

• RB lifts OCR to 2.5%, more rate rises to come but timing ‘highly uncertain’

• OCR rise likely to keep house buyers cautious and willing to wait

• One vote, two perspectives: Behind the Reserve Bank’s OCR split

Cuts or hikes to the central bank’s interest rate take a long time to filter into the wider economy, meaning the settings from several months ago might not have an impact until the end of the year.

But the economy of the first half of this year is not the one Willis would have hoped for heading into a tight election. This makes it virtually impossible for her to get any political capital by arguing that the only reason the hike is possible is because of growth.

This is not however the worst possible point for a hike this year. Home loan rates have already risen this year in anticipation and most mortgagees are already fixed, so the immediate impact on voters is minimal. While some disagree with the need for the hike in the first place, the bank seems clear on the need for one, given the decision was unanimous.

The emotive impact of rates going up is real. The news of a hike itself can ‒ and is often designed to ‒ impact consumer and voting behaviour very quickly. But it is far enough away from the election that this rate rise is unlikely to be the one that really changes voters’ minds that much.

No, that will be the next one ‒ or even two ‒ widely expected to arrive later this year. The timing here is crucial.

There are three more scheduled meetings this year, and two before the election.

A hike at the December 9 Monetary Policy Statement is immaterial to the election that happened a month prior. A hike at the Monetary Policy Review on October 28 would happen two days into the early voting period, as the country was literally heading to the polls in droves. Swing voters by their very nature make up their decision later than others. Even if the impact of a rate rise on them in October wouldn’t be felt for yonks, the immediate shock of one could seriously impact the vote. This would be particularly bad if it was the third hike in the row, coming after another in September.

Indeed, research looking at UK elections suggests conservative governments are particularly affected by rate hikes, with every 1 percentage point increase to the interest rate in the 10 months ahead of an election leading to a 0.75 percentage point decrease in the vote for the Tories. We are a long way from a 1-point increase of course, but this is going to be a tight election where every little factor counts.

Willis would face a tough environment if that Halloween Hike eventuates. She spent much of 2022 castigating Grant Robertson for rate rises that happened under his watch, especially when he blamed it on overseas events outside of his control ‒ something she now has plenty of experience of. The rate would be well south of the 5.5% it was ahead of the last election, but the direction of travel would matter.

Conversely, if there are no rate hikes between now and then, that would suggest the Reserve Bank is not seeing much strength in the economy worth tamping down, meaning Willis would be far from comfortable in her position.

Everyone wants New Zealand to be driving somewhere. But do they want Willis at the wheel?