Watch David's latest OCR analysis below, or keep scrolling to read the full article:
It was a no-change verdict the market was expecting this week, and it’s a no-change verdict we got—with the Reserve Bank (RBNZ) holding the Official Cash Rate (OCR) steady at 2.25% on 18 February.
More than the headline number, though, it was the RBNZ's revised rate forecast (and associated commentary) that people were really watching and waiting for.
If you remember, last we heard, in late 2025, the plan was to keep interest rates relatively flat this year—giving the economy a chance to get more firmly back on its feet—before starting the gradual transition back to a ‘neutral’ OCR (3.00%) sometime in early 2027.
Since then, though, our old nemesis inflation has threatened to throw a bit of a spanner in the works.
Data for the December 2025 quarter, released in late January, showed annual inflation tracking at 3.1%—higher than what was forecast, and officially outside the upper limit of the RBNZ’s 1-3% target range.
The news ignited a whole lot of uncertainty and speculation around the future of interest rates, with some bank economists picking that rates could start tracking upwards again from as early as mid-year. As a result, we’ve seen wholesale rates track upwards—particularly across the three- to five-year terms—which has flowed through to some increases in retail mortgage rates.
The good news? It looks like the market may have gotten a little bit ahead of itself.
In the end, this week's announcement from the RBNZ struck an undeniably dovish tone.
It’s confident that—despite that blip on the radar late last year—inflation is well under control (and in fact, likely already back within the 1-3% target range) and should fall to around 2% over the next 12 months.
As such, its outlook on interest rates has remained largely unchanged.
The expectation is that the OCR will stay at its current level for most of 2026, with a small (0.25%) increase to come either in November of this year, or early 2027—depending on how the data plays out.
With the economy now finally starting to pick up a bit of momentum again, the RBNZ has taken the opportunity this week to send a very clear signal to the market: it doesn’t want to risk interest rates climbing too soon, and de-railing that recovery.
So, what does that mean for interest rates?
In short, probably not a lot.
Wholesale rates may come down slightly off the back of the news, but not enough to have any material benefit for borrowers in terms of lower mortgage rates.
It’s important to note that, even though the OCR looks set to remain as-is for the majority of this year, the next move, when it comes, will be an increase—which is why we’re seeing longer-term rates sitting higher than shorter-term rates right now (a.k.a. an upward-sloping yield curve).
When it comes to the question of how long to fix for in this environment, it really comes down to your personal situation, and how much certainty you need (vs. risk you can handle).
Locking in short-term means you’ll get the benefit of a lower rate for now—but there’s also a chance, that, when your loan matures in, say, 12 months’ time, you'll be rolling off onto a higher rate. If you’ve got the capacity to deal with that, then all good.
If cashflow is a little tighter, and you really need confidence around what your mortgage payments are going to look like over the coming years, then locking in longer-term—even at a slightly higher rate—might make more sense.
For guidance on the strategy that’s right for you and your situation, get in touch for a chat with one of our expert mortgage brokers, who can help you run the numbers and talk through your options.
About the author: David Cunningham, Chief Squirrel
With more than three decades of senior experience across New Zealand’s financial services sector, David knows the world of banking and finance inside out. He's not afraid to call it like he sees it (all part of our fight for a fairer financial system) which is why he's a regular media commentator on matters relating to the economy, housing market, mortgages, saving and investing, and interest rates.