Reserve Bank sits on the fence

Following the Reserve Bank’s (RBNZ) announcement yesterday Wednesday the 18th of February that it was leaving the Official Cash Rate (OCR) unchanged at 2.25%, I thought you’d be interested in knowing what impact I see this having now on mortgage rates.

The RBNZ and its new Governor Dr Anna Breman has stated that it is confident inflation will fall to the 2 percent midpoint over the next 12 months. Currently inflation is sitting at 3.1 percent and thus outside the 1 to 3 percent target band mandated by the Government. Many economists believe though that underlying price pressures this year are unlikely to cool inflation to the 2 percent level. You don’t have to be an economist to understand that many Kiwis are currently struggling with cost-of-living pressures and that these monthly costs continue to increase with them all been inflationary. With the RBNZ making previous statements like it predicts households and businesses will adapt to lower cost-of-living increases the people currently in charge of setting monetary policy at 2 The Terrace Wellington appear to be isolated from the economic reality faced by many New Zealanders.

More than 10,000 more withdrawals were made from KiwiSaver for hardship reasons last year than in 2024, and providers say there's no sign of the rate slowing. Inland Revenue data shows there were 58,460 withdrawals for hardship reasons in 2025, 10,000 more than were made for a first home. The current cost-of-living pressures which are influenced mainly by inflation are clearly impacting more and more New Zealanders however the RBNZ seems oblivious. So why did the RBNZ decide it was appropriate to reduce the OCR in November last year? Their forecasting of where inflation was heading in 2026 appears now to have been optimistic at best. All that they accomplished with this last cut was to increase the bank’s profit margins whilst making the likelihood of an OCR increase happening this year much more likely now

We want our central bank to be independent, but we still need the right people being employed there and running it. This is not happening currently. In my opinion it’s time for the new Governor to clean house starting with the people currently sitting on the Monetary Policy Committee. Their terms of service need to be terminated early by the Government. A clean slate is clearly in order because the country simply cannot afford to continue experiencing the bad decisions that we are currently getting from our central bank. Kiwis have been trying to make informed decisions now for years around how long they should be fixing their mortgage repayments for and unfortunately with the poor forecasting coming out of the RBNZ this process has never been an easy one. We need an overhaul of the Reserve Bank because things are not functioning there as they should be. Just look at their track record compared to other central banks around the world.

So, in summary mortgage rates have stopped falling at least for this current interest rate cycle and politicians, land agents and property developers need to stop pushing the narrative that the cost of borrowing money won’t be getting more expensive. Whilst mortgage rates are not going to increase significantly for the immediate future, they won’t be getting any cheaper either. People with a home loan need to appreciate this and fix their loan repayments accordingly.  Banks are likely to anticipate now the direction that the OCR and inflation will be heading this year. Based on the increases already made to fixed mortgage rates in the past few months the banks obviously see the cost of borrowing becoming more expensive.

My own prediction for when the Reserve Bank will likely be forced to increase the OCR

this year is as early as the 27^th of May, this been the OCR review date following the next CPI/inflation data due from Stats NZ on the 21^st of April. With inflation currently sitting outside target if the inflation data due on the 21^st of April doesn’t show improvement, Governor Breman will need to act given her repeated statements about been “laser focused” on combating inflation. It’s a big part of the reason why she got appointed to the role in the first place. Inflation reduces purchasing power, meaning that your money buys fewer goods and services. It acts as a hidden tax, eroding savings, increasing business costs, and making it difficult to plan for the future. New Zealand needs its central bank now to be focused on its core role as the country can ill afford a repeat of what it experienced under Adrian Orr.

Please let me know if you would like to discuss the current mortgage rate that you are on with your bank or are needing assistance with finance to purchase a new property or to refinance.

Kind Regards

Simon