Last updated: 11 June 2026
In it's May Monetary Policy Statement, the Reserve Bank of New Zealand held the Official Cash Rate (OCR) steady at 2.25 percent.
While not unexpected, the decision was closer than anticipated. The Committee was split three to three, with Governor Anna Breman's casting vote ultimately keeping the OCR on hold. That split reflects the genuine tension in the current environment: three members wanted to move now, three judged it premature. We sit firmly in the latter camp, and here's why.
The New Zealand economy is navigating a genuinely uncertain moment. Fuel prices have surged on the back of the conflict in the Middle East, pushing inflation expectations higher and prompting financial markets to price in earlier OCR increases than we think the underlying data justifies.
Annual CPI inflation sat at 3.1 percent in Q1 2026, just above the RBNZ's 1 to 3 percent target band. But the key detail is what is driving it. As was outlined in the RBNZ’s Monetary Policy Statement, the current inflation overshoot is largely the result of higher fuel prices flowing through from the Middle East conflict, rather than domestic demand pressure. Importantly, core inflation, which strips out those volatile, short-term movements, has actually been declining, averaging around 2.3 percent in the March quarter. Wage growth is running at 2 percent, consistent with the Bank's medium-term target. Those are not the readings of an economy with an entrenched inflation problem.
The RBNZ's own projections see inflation peaking at 4.3 percent in the September quarter before returning to the 2 percent target mid-point by mid-2027, largely because the initial fuel price shock is expected to drop out of the annual calculation as oil prices ease. That is exactly the kind of temporary, self-correcting inflation that does not warrant an aggressive policy response.
With GDP growth soft, consumer confidence falling sharply, and spare capacity still present in the economy, the conditions that would justify moving faster simply are not there yet.
Rate increases are still coming – the RBNZ itself was clear that OCR increases will be required this year. But we expect the pace to be measured, with the Bank projecting the OCR to increase gradually to around 3.3 percent over the medium term. That is good news for borrowers. It means there is still time to act thoughtfully and put the right structure in place.
The RBNZs May announcement does not change our fundamental advice, but it does sharpen the case for acting sooner rather than later.
Financial conditions have already tightened this year. 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 in the short term, and it underscores why having a clear mortgage strategy in place now matters.
Two and three-year fixed rates continue to represent the best combination of medium-term certainty and relative value for the majority of borrowers. Splitting lending across two-year and three-year terms is a strategy we also favour in some circumstances, as it creates flexibility at refix while still capturing meaningful protection against where rates are likely to head.
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, the RNBZs announcement is a good prompt to have a conversation with our team. 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.
The direction of travel for interest rates is still upward. A hold in the RBNZ’s May OCR announcement simply means the tightening cycle has not started yet. Rates will be higher in a year's time than they are today, and borrowers who plan ahead 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.
