Major banks expect monetary policy tightening to resume
Standard residential mortgage interest rates in New Zealand rose across most fixed terms in May, according to data recently released by the Reserve Bank of New Zealand (RBNZ), as the central bank prepares to lift the official cash rate (OCR) amid mounting inflation pressures.
The RBNZ’s B20 statistics series – which tracks simple averages of advertised standard first-mortgage rates offered by registered banks to new borrowers, excluding special discounts – showed the one-year rate rising to 5.26% in May from 5.22% in April, while the two-year rate climbed to 5.69% from 5.65%. Longer fixed terms also moved higher, with the three-year rate reaching 5.86% and the five-year rate rising to 6.24%, compared with 5.81% and 6.19%, respectively, a month earlier. The floating rate remained unchanged at 6.15%.
The increase extends a trend that began in January, when most fixed terms reached their low point following an aggressive RBNZ easing cycle that reduced the OCR by 325 basis points from a peak of 5.50% between August 2024 and November 2025. The OCR has remained at 2.25% since 26 November 2025.
Oil prices fuel inflation concerns
The backdrop to rising mortgage costs is a deteriorating inflation outlook linked to global oil price shocks. On 27 May, the RBNZ’s Monetary Policy Committee agreed to keep the OCR at 2.25%, noting that conflict in the Middle East is expected to keep inflation above its target range this year and slow New Zealand’s economic recovery.
The committee said it expects to increase the OCR during 2026.
The RBNZ also noted that financial conditions in New Zealand have tightened as higher wholesale interest rates have flowed through to higher fixed-term mortgage rates. Annual headline inflation stood at 3.1% in the March 2026 quarter, above the bank’s 1% to 3% target range, with fuel price increases identified as a key contributor.
The central bank forecasts inflation will reach 4.2% in the June quarter and peak at 4.3% in the September quarter before gradually returning to the 2% midpoint by mid-2027, as noted by mortgage broker Squirrel. The RBNZ has signalled that it expects to deliver one 25-basis-point OCR increase before September and that a further rise is likely before December, which would leave the OCR at 2.75% by year-end.
ANZ, Westpac and BNZ have all forecast at least one OCR increase in 2026. The RBNZ’s next scheduled monetary policy decision is on 8 July.
The B20 data is available through the RBNZ statistics portal.
