OCR up to 2.75%. But the real story is in the jobs data

As expected, the Reserve Bank lifted the Official Cash Rate (OCR) from 2.50% to 2.75% - no surprises there. The more interesting news is on the horizon: the RBNZ's latest forecast now points to a peak OCR of 3.50% by September 2028, well below what markets and some commentators have been pricing in (a 4.00% cash rate by the end of 2027).

We may still see one more increase before the end of 2026, with a possible hold in October 2026.

.

Why the outlook is softening

A weak Kiwi economy looks set to do a lot of the heavy lifting on inflation from here. There's significant spare capacity across the economy and employment data explains why the RBNZ is likely to take a "wait and see" approach heading into 2027.

.

The employment picture

• Unemployment is at 5.6%, which is the highest since September 2015.
• Youth unemployment (15–24) sits at 17.2% for June, barely down from 17.3% in the March quarter (a 14-year high). That means more than one in six young Kiwis in the labour force are out of work.
• The next closest age group, 25–34, is at 5.2%, which is a 9-year high.

Youth unemployment has always run higher than other age groups, but current levels are among the highest seen since the post-COVID recovery.

.

A growing North–South divide

The regional split is stark, and it's been widening since 2021:

• South Island: 3.7% unemployment for the June quarter, helped by strong overseas demand for manufacturing.
• North Island: 6.0%, with Northland the hardest hit at 8.8%.
• Auckland: 6.5%, well above Wellington's 4.9%.
• Canterbury and Otago are the country's strongest performers, both at 3.6%.

.

The North and South Islands are now telling two very different economic stories.

.

Got questions about what this means for your mortgage, first home purchase, or investment plans? Get in touch, happy to talk through the numbers.

.

.