The Reserve Bank hikes the OCR: Its first rise in three years
What it means for mortgage rates and your fixed-rate decision
Today the Reserve Bank lifted the Official Cash Rate by 0.25% to 2.50%. It’s the first rise since 2023 and the end of the run of cuts we saw through 2024 and 2025. It was a closer call than it looked a month ago.
Back in early June, the Middle East conflict had pushed oil and petrol up, and inflation with it, and a July hike looked all but certain. Then the ceasefire sent oil back down, petrol dropped about 50 cents a litre, and the immediate inflation scare eased. ASB and Westpac both moved to picking no change.
The Reserve Bank went ahead regardless. Petrol may have come off, but the costs that worry it most are closer to home — rents, insurance, council rates, everyday services — and those are still climbing too fast. At 2.50% it still sees rates as low, and Governor Anna Breman said more rises are likely. Today is probably the first of several.
Where rates go from here
Three more decisions are left this year, in September, October and December. Most economists expect one or two more rises, taking the OCR toward 3% early next year. ASB sees it topping out near 3.25%, Westpac closer to 4%.
What it means for your fixed rate
Running today’s decision through my monthly analysis, not much changes, because the market had already seen it coming. Staying on the one-year (around 4.65%) still works out cheapest whichever forecast you believe. If you’d rather have certainty, the two-year (from about 5.19%) still beats the three-year. The three-year (from about 5.29%) is worth a look if you think rates could really push toward 4%. Five years is still hard to justify on the numbers.
The biggest gaps between banks are at the longer terms, so it pays to shop around and negotiate. Which bank you’re with can matter as much as which term you pick.
Today’s rise on its own won’t move mortgage rates much, it was expected and already priced in. What matters for your next fixed-rate decision is where the OCR ends up, not the small step today. If it settles near 3%, staying short still stacks up. If it climbs toward 4%, fixing a bit longer starts to look like cheap insurance.
General information only, not personalised financial advice. Figures are illustrative and use advertised special rates — your situation will differ. Talk to an adviser before deciding. Rupert Hunt is a New Zealand financial adviser.
Photo: Anna Breman, Governor of the Reserve Bank of New Zealand and chair of the Monetary Policy Committee.