How much bad news for borrowers this week?

Borrowers should be braced for another cost-of-living blow on Wednesday when the Reserve Bank issues its final monetary policy statement for the year, if economists’ forecasts are on the mark.

Most analysts expect recent inflation data will persuade the Reserve Bank to raise the official cash rate by 75 basis points to 4.15%, after its previous five 50bp raises and single 25bp raise earlier in the year. But some argue a 50bp rate rise to 4% should and may still be in play, amid a growing fear of recession and indications that inflation has passed its peak, both in New Zealand and overseas.

The Reserve Bank will also publish its first new forecasts since August on where it sees the official cash rate (OCR), inflation and unemployment heading over the next three years.

Although its mid-term forecasts have not proved particularly accurate since the start of the Covid pandemic, they can have an immediate impact on financial markets and on fixedmortgage and term deposit rates.

The bank’s August forecast implied the OCR would peak at 4% in February and remain at that level throughout 2024 but many analysts now see it reaching 5% by April.

ANZ, the country’s largest bank, believes the Reserve Bank will raise the OCR by 75 basis points both on Wednesday and when it releases its next statement after that on February 22.

But it said if there was to be a surprise on Wednesday, ‘‘a 50bp hike is more likely than 100bp’’.

‘‘We would put the odds of a 75bp hike at about 75% – we are well over the line but it is not a slam dunk.

‘‘It is absolutely possible that the Reserve Bank might decide another 50bp hike plus a stiff OCR track and some stern words will do the job,’’ it said.

BNZ research head Stephen Toplis is also forecasting a 75bp rise but is more cautious, saying that if it was up to BNZ it would only raise by 50bp.

‘‘We think 50bp would be the best thing to do given that leading indicators are overwhelmingly pointing to a troubled period of activity ahead and the full impact of past tightening will not be felt for some time,’’ he said.

But Toplis said the Reserve Bank would not want to appear to be going soft on inflation.

‘‘The determining factor for the bank may well be what the market is pricing in the run-up to the decision.’’

Data that may point to a 75bp hike includes reports from Stats NZ that showed inflation barely budging and official unemployment unchanged in the three months to the end of September.

But mitigating factors since the central bank’s monetary policy review last month include a surprisingly steep drop in US inflation in October and a recovery in the value of the New Zealand dollar to US61c, from US57c, which should reduce imported inflation.