Last updated: 21 July 2026
In its July Monetary Policy Review, the Reserve Bank of New Zealand raised the Official Cash Rate (OCR) by 25-basis points, from 2.25 percent to 2.50 percent.
The call was closer than it looked a few months ago. Markets had all but priced in a July hike, then conviction eased to around fifty-fifty before today's decision confirmed the increase. The Monetary Policy Committee reached consensus on the move, a stronger show of agreement than the finely balanced market pricing suggested. Global oil prices have fallen sharply since the partial reopening of the Strait of Hormuz, easing near-term inflation pressures, but the Bank was clear the effects of the shock will linger and the medium-term outlook remains uncertain. That reasoning tipped the balance towards moving now, even as a softer domestic economy continued to argue for patience. Here's the thinking behind it.
New Zealand's recovery lost momentum in the June quarter as the oil shock weighed on activity, though the Bank expects growth to resume from September as those effects fade and confidence improves. Inflation still isn't showing up in wages, and outside farming and Queenstown the economy remains soft, especially in Auckland and Wellington. On that basis alone, we would have preferred the Bank hold rates in the short term, but the Committee judged that inflation risk outweighed those signs of a soft economy.
Markets had been pricing in further OCR increases later this year and into 2027, and today's move is consistent with that view. The New Zealand Institute of Economic Research's July Shadow Board of independent economists had been similarly split between holding and a 25 basis point rise, so this was a genuinely live debate rather than a foregone conclusion. Nearly all members agreed the OCR should be higher within twelve months, centred around 3 to 3.25 percent, which is considered a ‘neutral’ point.
Today's increase takes the OCR a step closer to neutral, though there is still some way to go. The Bank itself signalled that some further reduction in monetary stimulus is likely to be needed, with future decisions depending on incoming data. We expect further increases over the coming year, but likely at a more moderate pace than markets have been pricing in. Borrowers should treat this as the start of a gradual adjustment rather than a sign of aggressive tightening to come.
Today's increase does not change our fundamental advice, but it confirms that the tightening cycle is now underway, which sharpens the case for acting sooner rather than later.
Financial conditions have already tightened this year, and the RBNZ's move to increase the OCR adds to that. The average interest rate on outstanding mortgages is expected to rise from around 4.9 percent to approximately 5.3 percent over the next 12 months as borrowers refix onto higher rates. That is happening regardless of what the OCR does from here, and it underscores why having a clear mortgage strategy in place now matters.
Given this outlook, we currently favour the two-year fixed rate, as it offers the best combination of certainty and value for most borrowers. There is also good merit in the 18-month rate, though this carries some risk of being a slightly short-fixed term. For those wanting a more conservative approach, the three-year rate is worth considering, though we think the extra 0.3 percent premium over the two-year rate has largely priced in the interest savings, and there is a risk of fixing for longer than needed.
Longer-term rates had eased slightly in the weeks before today's decision, reflecting the market's more moderate view of where this interest rate cycle will ultimately peak; it is worth checking with your adviser whether that view still holds following the RBNZ’s latest move.
In general, we are not recommending short-term fixes of six to twelve months for most borrowers right now. While those headline rates look attractive in isolation, the risk is rolling off a short fix and into a materially higher rate environment in the second half of 2026 or into 2027.
If your fixed rate is due to expire in the next six to twelve months, it is worth reviewing your situation sooner rather than later. For some borrowers it will make financial sense to review their position now and consider locking in ahead of time rather than waiting until their current term expires. Whether that stacks up depends on your individual break cost, remaining term, and lender, so it is worth running the numbers with your adviser before making any 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.
It is worth noting that since the RBNZ's July update, floating / variable rates have also risen across all lenders.
July's OCR increase confirms the direction of travel for interest rates is still upward, though the pace looks set to be more moderate than markets have been pricing in. Borrowers who plan ahead, and structure their lending sensibly, will be better placed than those who wait and react.
If you have a mortgage coming up for refix, or you simply want to make sure your current structure still makes sense given where things are heading, now is the time to have that conversation.
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.
