Kiwibank says the Reserve Bank should hold off on lifting interest rates further, despite expecting the official cash rate to rise again next week.
The Reserve Bank lifted the official cash rate (OCR) from 2.25% to 2.50% in July, the first hike in three years.
Kiwibank said it expected the OCR to be lifted again to 2.75% next Wednesday, before moving to 3% later this year.
However, Kiwibank economists said they believed interest rates should remain "stimulatory" for now, "to encourage investment and hiring".
"The economy needs support, and inflation pressures should ease from here," it said.
The economists pointed to rising unemployment and underemployment, subdued wage growth of around 2%, and weakness in the housing market as signs further rate hikes were not yet needed.
"If it were up to us, we would have left the cash rate at 2.25%, and look to commence tightening after the election."
They added that uncertainty from the war in the Middle East had caused businesses to delay or cancel projects and households to pull back spending, with economic activity potentially contracting in the June quarter.
"The economic recovery has hit yet another speed bump," the Kiwibank economists said.
"It is simply too early to assess the inflationary pulse, and the likely unwind. It is too early to gauge the impact on demand. And it is too early to see the adverse effects in the labour market.
"Therefore, it is too early for the RBNZ to hike."
Other major bank agrees on likely hikes
Westpac also anticipated a 25 basis point hike next week and another later this year, taking the OCR to 3% by the end of 2026.
However, it expected rates to continue rising through 2027, reaching 4% as the Reserve Bank worked to bring persistent underlying inflation back towards its target.
Westpac chief economist Kelly Eckhold said the economy appeared to be regaining momentum after a difficult few months, with growth forecast at 2% this year and 3% in 2027.
"However, core inflation has now sat above the 2% midpoint of the RBNZ’s target band for five years, and headline inflation is expected to stay above 3% until mid-2027 before briefly dipping below 2% as fuel effects drop out," he added.
"The underlying pressure on prices has proven persistent, and the Reserve Bank will need to manage that carefully."
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