The Reserve Bank has kept the OCR steady at 2.25% today (18th February 2026) and forecast that slow rate rises are likely by the end of the year, largely in line with market expectations.
It seems to be universally agreed by most economic commentators that interest rates are going to increase in 2026. The question is therefore not if interest rates will increase, but when will they increase?
New Governor’s First Monetary Policy Statement
The Reserve Bank’s Monetary Policy Statement (MPS) provides a quarterly picture of the New Zealand economy and where the Reserve Bank thinks it is heading next and sets out how the committee has set monetary policy and how it plans to do so in the future.
This is really more important than the Official Cash Rate (OCR).
They have highlighted that the economy is at an early stage in its recovery and they are seeing growth broadening across sectors of the economy, such as manufacturing, construction and some retail. Economic growth is expected to increase over 2026. Also there appears to be ongoing strength in commodity prices, and economic activity in the agricultural sector and regional New Zealand remains strong.
Residential and business investment is increasing slowly, but households remain cautious in their spending. As reported the house price growth remains weak, dampening household wealth and any inclination to start spending.
The labour market is stabilising, but unemployment remains elevated.
They highlighted that the CPI inflation was 3.1 percent in the December 2025 quarter, accounted for by higher tradables inflation. Measures of core inflation (that attempt to look through this volatility) remain within the 1 to 3 percent target band and so they expect inflation to return to the target band in the first quarter of 2026.
For the reasons highlighted the Committee agreed to hold the OCR at 2.25 percent and said that if the economy evolves as expected, monetary policy is likely to remain accommodative for some time which would lead to stable interest rates for 2026.
You can be assured that Kiwi Edition is constantly watching what happens in the New Zealand financial markets and we will report any changes as we see things happen – so bookmark this and pop back from time to time.
What About Home Loan Interest Rates?
So what does this mean for interest rates?
The release was more “dovish” (supports low-interest rates to stimulate growth) than the market expected and off these comments the New Zealand dollar fell by about 30 basis points (bps) to US60.15c on the news from US60.45c before the 2pm announcement, while two-year swap rates eased to 3.000% from 3.025%.
While the OCR affects the floating rates and short-term fixed rates, the two-year swap rates impact on what we pay for longer term fixed rates. It’s therefore good news for home owners to see the swap rates ease.
The Reserve Bank and most economists are predicting that there will not be any significant interest rate increases in 2026, but that increases are always possible later in the year if the economy picks up more than predicted.
What about the home loan?
A lot of people are starting to ask what they should be doing with refixing their home loans.
Mortgage managers have been working with lots of clients on refixing home loans, and rather than the short-term refixes that have been promoted by many of the banks and other mortgage advisors, the recommendation is to set goals and establish or go back to your strategy and refix at least some of your mortgage for longer periods.
Remember that fixed rates are lower than floating rates and the longer term fixed rates give you some certainty. If you’re risk adverse, then fixing some of your mortgage for five years is a pretty good option. It gives you some certainty around rates for a decent length of time, and if you retain some of your mortgage on the one and two-year rates, you therefore have flexibility as well.
Offsets are becoming a lot more popular. Whereas previously a lot of people used revolving credit loans (like a large overdraft) now more people are moving to an offset loan, which enables you to link multiple bank accounts to your mortgage to offset the interest. It’s a clever way to manage your money better, and gives you some really good savings if managed properly.
Unfortunately, not all banks offer an offset home loan, but it’s certainly something that you should consider if you’re looking to refix.
Increase your repayments this year while OCR steady.
The other issue that is often overlooked is the ability and the impact of paying extra on your fixed loans. Most banks allow you to pay more than the minimum repayment on your fixed loan, with some banks enabling up to 20% more, whereas other banks it might be a fixed dollar amount.
It’s important that you understand what options your bank give you, but also you need to manage the risks associated with paying extra. For example, if you pay extra on an ANZ home loan, you will be shortening the loan term, which all sounds good until interest rates increase. ANZ do not automatically let you revert to the original loan term, and therefore, if interest rates increase, you can get stung with increased repayments that could easily be unaffordable. If you have an ANZ home loan, then you need to talk to your mortgage advisor about how to structure it so that you can take advantage of the extra that you can pay without getting yourself trapped when interest rates do increase.
Let’s Get Organised Today
Let’s round this off by saying, we love hearing the Reserve Bank say the “OCR Steady” but we can never be sure for how long, and so we’re recommending that you establish or revert to a good mortgage strategy.
That should include having some flexibility in your loan by using a revolving credit or offset account, and then splitting your home loan, potentially with some over the longer five-year period, to give you that extra certainty.
It’s important that you understand what flexibility you have within your fixed home loans and try to round your payments up a bit, remembering that every extra dollar that you pay on your home loan goes straight off the principal. It means you can save a lot of money in the long run. It’s definitely something worth doing, especially while interest rates are at the current levels.
It’s always harder to pay extra on your home loan when the interest rates increase so try to make the most of the low rates that we have now.
If you have any other short’s term debt, then have a look at that and see whether that can be refinanced into the mortgage to get the lower interest rates. But try not to extend the term that you’re paying it off over.
Also, if your equity in the property is under 20%, then set yourself a goal to try and get 20% equity in your property so that you can take advantage of the special rates on offer.
The team at Mortgage Managers are here to help establishing goals and give you some tips on how to manage potential interest rates increase and how to achieve those goals for 2026.
