Last updated: 21 May 2026
In its April assessment of rates, the Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) steady at 2.25 percent. In our view, that is exactly the right call given where the New Zealand economy sits right now.
The New Zealand economy is navigating an unusual moment, and the Reserve Bank has chosen to sit tight while the picture becomes clearer. We think that is sensible.
Fuel prices have surged on the back of the Iran conflict, pushing inflation expectations higher and prompting markets to price in earlier OCR increases than we think are warranted. However, we believe markets may be moving faster than the underlying data justifies.
A fuel price shock is inflationary on paper, but it also drains household budgets and dampens spending, which is itself a brake on the economy. In our view, the RBNZ’s real challenge is distinguishing between two very different types of inflation. Oil-driven price rises tend to be temporary and self-correcting. Wage inflation is stickier and harder to unwind.
The Bank will be watching closely to see whether higher fuel costs feed through into wage growth and broader inflation expectations. If they do not, the case for raising rates into an already-slowing economy weakens considerably. This is also a materially different situation from 2022, when COVID-19 and supply chain disruptions hit an economy with strong demand. Today, demand is weak and spare capacity remains, which should act as a natural brake on second-round inflation effects.
OCR increases are still coming (most likely later this year or into 2027), but they are likely to be gradual rather than sharp. That is actually good news for borrowers as it provides time to plan and is why having a clear mortgage strategy in place now matters.
Holding the OCR steady in its April update gives borrowers a valuable window. Rates have eased slightly from their recent peak, but the medium-term direction remains upward. While the RBNZ is forecasting headline inflation to reach 4.2 percent in the June quarter before easing, which underscores the importance of acting now rather than waiting. Locking in the right structure now, before further movement occurs, and having a clear strategy in place is important.
While there is no ‘one size fits all’ approach to mortgage strategy, many of our clients are currently fixing for two to three years, and we think that remains the right strategy for the majority of borrowers.
The three-year fixed rate continues to represent the best combination of medium-term certainty and relative affordability. Splitting lending across two-year and three-year terms is also a strategy we favour in some instances as it provides some flexibility at refix while still capturing meaningful protection against where rates could be heading.
We are not recommending short-term fixes of six to twelve months for most borrowers right now. While those rates look attractive in isolation, the risk of coming off a short fix and refixing into a materially higher rate environment is significant, particularly for anyone whose term expires in the second half of 2026.
If your fixed rate is due to expire later this year, today's announcement is a good prompt to have a conversation with your adviser.
While rates have eased slightly from their recent peak, the medium-term trajectory is still upward. For some borrowers, it will make financial sense to break their current term now and lock in at today's rates rather than wait and refix into a higher environment. Whether that stacks up depends on your break cost, your remaining term, and your lender so it is worth running the numbers with your adviser before making a call.
For reference, the latest negotiated rates* our advisers are seeing include:
* Please note these figures represent negotiated rates our advisers have secured on behalf of clients and may differ from advertised rates.
We believe that the RBNZ made the right call in April. The economy needs room to breathe, and the data needed to make confident policy decisions simply is not there yet. Rate increases are still coming but the timing is not as imminent as markets have been suggesting, and the pace is likely to be more measured than current pricing implies.
If you have rates due to expire over the next six to twelve months, now is the time to think carefully about your position.
If you would like personalised advice on your next step, click here to book a complimentary review with your adviser.
The content of this article should not be taken as financial advice, or a recommendation of any financial product. These insights are based on current economic commentary, market pricing for interest rates, and our personal opinion. Threefold is not liable or responsible for any information, omissions, or errors present.
