Borrowers deciding between fixing and floating face the most uncertain rate environment of the year
For borrowers weighing whether to fix or float right now, the timing could hardly be more complex. New Zealand mortgage rates are already moving higher ahead of any OCR move, and economists from three major banks disagree on whether the RBNZ will lift in July or September — with the answer hinging less on domestic data than on whether a fragile US-Iran peace deal holds.
The 60-day ceasefire signed last week provided initial relief, pushing oil prices to around US$80 per barrel and lifting financial market sentiment. But the optimism was quickly tested.
Kiwibank chief economist Jarrod Kerr (pictured left) warned the situation remains deeply unstable: "We are at a tipping point. Once the reality of the oil shortage starts to be reflected in the oil price once again, we could be facing those worst-case scenarios of $150-$200 USD per barrel prices."
Israel has since violated the ceasefire and Iran has again moved to restrict the Strait of Hormuz, keeping uncertainty elevated heading into the week.
A solid economy, now at risk
Against that volatile backdrop, New Zealand's own fundamentals told a more encouraging story — at least up to the point the conflict intensified. The economy grew 0.8% in the March quarter, with nine of 14 industries recording output gains. Upward revisions to the December 2025 quarter lifted annual growth to 1.5% — above the RBNZ's own 1.2% forecast.
The question is how much of that momentum survives.
"The economy is on course for another year of soggy growth," Westpac senior economist Satish Ranchhod (pictured center) said, forecasting just 1.4% expansion over 2026, with unemployment lingering above 5%.
The rate decision borrowers are watching
With the OCR at 2.25% and markets pricing more than 80% odds of a July hike, the timing question is live. Westpac expects the RBNZ to hold in July and begin a sequence of 25bp hikes from September, with the OCR reaching 3% by year end.
ASB economist Wesley Tanuvasa (pictured right) holds the July hike call but concedes "this view is held with less conviction" given geopolitical progress shifting the risk distribution toward a later cycle. ASB's forecast has the OCR peaking slightly higher at 3.25% by year end — reflecting its view that inflation, while moderating, will prove stickier than markets currently expect.
Tanuvasa noted that May's Selected Price Indexes showed weak demand containing cost-push pressures, prompting ASB to lower its forecast CPI peak to 4.1% in Q2 2026 — a development that gives the RBNZ slightly more breathing room on timing, even if the direction of travel remains upward.
Westpac economists offered the clearest steer for borrowers currently weighing their options: "Fixed-term mortgage rates between two and five years now lie above 5%, but fixing for one of these longer periods still appears attractive as it would insulate borrowers from a trend higher in the OCR over the next couple of years."
For context, the two-year fixed rate has already become more popular than at any point since late 2022 — a clear signal that borrowers are already seeking certainty.
The trans-Tasman picture reinforces the trend — the RBA held at 4.35% last week but leaned against the idea its hiking cycle is definitively over, signalling that rate pressure is not uniquely a New Zealand story. For brokers advising clients on borrowing capacity and rate strategy, the direction of the OCR is up — all three banks agree on that. The pace depends on whether the ceasefire holds.
For more insights, read the full reports from this week's major bank economists: Westpac, ASB and Kiwibank.
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