We spend a lot of time on research and following the news both here and around the world, and if there is one thing that we have learned it’s that trying to predict interest rates is a fool’s game.
That might be so, but why?
There are plenty of very experienced financial analysts and economists that have given up trying to predict interest rates both in New Zealand and around the World.
The Impact of the Middle East Conflict
When the USA and Israel decided to take up arms against Iran the expectation (from them at least) was for a short sharp war to tidy up what they were saying was an out of control regime.
After was initiated by the United States and Israel on February 28, 2026 and so that’s been over 15-weeks now. Given how long the underlying hostilities have been going on, this has been really short; however if we consider that Trump predicted 4-6 weeks then we have been waiting a long time to see any resolution.
Of course the conflict has resulted in over 10,000 reported deaths and 50,000 injuries, although many believe that casualties are significantly higher than the figures reported. Then there is a huge amount of damage to property and infrastructure, plus there has also been a huge financial impact around the World. The financial impact that we feel in New Zealand all stems from the inability for ships to navigate the Strait of Hormuz which is the waterway between the Persian Gulf and the Gulf of Oman which ships need to move oil out of the area and onto final destinations like New Zealand.
We could all see the fuel prices increase here – that was the most obvious financial effect for most Kiwis.
Reserve Bank Issued a Warning
We have been hearing in New Zealand how the inflation caused by the increased fuel prices could lead to mortgage rates being pushed up earlier that predicted this year. On the 27th May the Reserve Bank held the OCR but did report that they expect inflation to rise above 4% this year because of higher prices for fuel and many other products where fuel is a significant input cost, such as airfares and food.
They also said that they are focused on ensuring that inflation returns to 2% and to achieve this they would be prepared and expect to increase the OCR this year.
So all the talk over the last month has been about how much the interest rates might increase by and when they will start increasing.
New Zealand is a small country and we cannot predict interest rates when they are influenced by what happens around the World.
What’s Happening Around the World?
Then we hear what is happening in other countries – like our close neighbour Australia and where our banks borrow a lot of the money for mortgages – the United States of America.
So this week in Australia the Reserve Bank of Australia (RBA) in a widely-expected move left the official cash rate (OCR) unchanged at 4.35%. They said that while inflation persists the central bank is taking a wait-and-see approach. During a press conference after the decision was handed down, the RBA Governor Michele Bullock acknowledged the strain those increases have had on Australians.
The Federal Reserve is also set to announce its latest decision on interest rates this week as the central bank weathers the highest inflation surpassing 4% for the first time in 3-years. With this pressure it would be easy for the new Fed Chair Kevin Warsh to increase rates; however it is predicted that like Australia the rates will be held while they wait and see too. If they listened to Trump then they could even lower rates.
In both Australia and the US there is inflation pressure, but they are blaming that on the conflict in the Middle East, and given that this looks to be nearing a conclusion then they are prepared to hold the status quo at least for now.
They are both talking of a wish to lower rates too.
What’s Expected to Happen in New Zealand?
We would love to predict interest rates to drop – BUT
Here at Kiwi Edition we love to offer our views, but as mentioned only a fool would predict interest rates in times like this.
What we can say is we expect that the Reserve Bank here will think long and hard before increasing the interest rates, but that’s no guarantee that they will hold rates either.
If you have a mortgage then there are two things that you should be doing today:
- Review your existing mortgage and make sure that you have the best home loan. You want flexibility and the ability to manage the loans, increasing repayments when the rates are low, but also to reduce to a minimum again if needed and especially if rates increase.
- Make sure that you have as much of your debt at the lower home loan rates. That might mean doing a top up or even refinancing your home loan.
While we know that it’s impossible to predict interest rates at the moment, we do know that over time we will see interest rates increase and decrease and so we need the flexibly to manage through those changes.
