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Interest Rate Predictions 2025

​Our guide outlines expert insights into New Zealand's interest rate predictions for 2025 and beyond, explaining how OCR changes shape mortgage rates, housing costs, investments, and debt. Our guide is published to help you make informed financial decisions in a rapidly changing economy.
Updated 26 December 2024

​Summary
  • The Reserve Bank is forecast to continue lowering the official cash rate (OCR) into 2025. By doing so, banks usually follow, mortgage rates and the interest rates offered by term deposits, savings accounts, and notice saver investments.
  • The consumer price index (CPI) puts the annual inflation rate at 2.2%, within the range of the Reserve Bank's goal of between 1% and 3% in the mid-term..
  • The Reserve Bank meets seven times a year to discuss adjusting the OCR, the benchmark that governs overnight lending between all New Zealand banks. In 2024, the Reserve Bank met seven times and made three cuts (on 14 August, 9 October and 27 November) as outlined on the Reserve Bank's website.
  • ​The Reserve Bank doesn't directly control the interest rates you're offered for any debt or investment, but it does influence them by setting the OCR. The OCR determines how much banks can charge each other when lending or borrowing excess funds.
  • Banks and other lenders (and deposit takers), in turn, adjust the rates they charge or offer for their financial products such as mortgages, personal loans, credit cards, term deposits, savings accounts, and notice saver accounts, among others.
  • When the Reserve Bank lowers the OCR, it affects everything related to credit and investing. However, depending on the financial product, the effects are slightly different and of different magnitudes.
  • Plenty of banks, economists, and companies regularly publish their interest rate predictions. Given the general cost of living, we are sharing regular interest rate insights, balancing a wide array of sources and our research team's insights.

Our guide outlines:
Know This: To keep you informed, the Reserve Bank's OCR meeting schedule in 2025 is as follows:
  • 19 February 2025
  • 09 April 2025
  • 28 May 2025
  • 9 July 2025
  • 20 August 2025
  • 8 October 2025
  • 26 November 2025

And, in 2026, the confirmed schedule so far is  18 February 2026, 8 April 2026, 27 May 22026 and 8 July 2026​

Interest Rate Predictions for 2025

  • ​​The outlook for mortgage rates in 2025 points to gradual and steady reductions, with dramatic cuts by the Reserve Bank deemed unlikely by most experts. Current forecasts from trusted economists and published research suggest the OCR will stabilise between 3.00% and 4.00% over the next two years. This would correspond to fixed mortgage rates from the big banks ranging from approximately 4.50% to 6.00%.
  • In response to rising uncertainty, more New Zealanders are choosing shorter fixed terms - typically one or two-year deals - to maintain flexibility.
  • This strategy allows borrowers to benefit from (possible) future rate drops while avoiding the risk of locking in higher long-term rates. Research from international markets routinely shows that borrowers opting for shorter fixed terms often pay less interest costs over time (unless there's a long period of period of near-0% interest rates whereby there is then a strong case to fix for as long as possible).

Key considerations for 2025 include:
  • Short-term fixing: Selecting a short-fixed-term (e.g. 1 to 2 years) first home loan or renewal may be the most attractive option for anyone anticipating rate drops in the next 12–24 months.
  • Higher equity benefits: Borrowers with larger deposits or significant home equity can generally access more competitive rates than those advertised by the banks given high equity means less risk to the lender. If this is you, the best approach is to talk to your mortgage broker or have a firm conversation with your lender and push for a rate reduction.
  • Plan for volatility: While the outlook for gradual rate reductions is positive, unexpected economic or geopolitical events could slow or reverse this trend. For example, if there is sudden and significant inflation reported by StatsNZ, the Reserve Bank may act quickly and hike the OCR, which is why interest rate predictions can be difficult to make. This means nothing is certain and the situation can change without warning. 

Know This: Term deposit rates typically move in tandem with mortgage rate trends:
  • Term deposits remain a popular and low-risk option for earning a predictable return on savings.
  • With the OCR forecasted to stabilise between 3.00% and 4.00%, term deposit rates are expected to hover around current levels, although future OCR cuts will directly lower term deposit offers.
  • You can see the current term deposit offers here.

Interest Rate Predictions for 2026–2030 (and Beyond)

Forecasting mortgage rates beyond 2025 is highly speculative given so much is going on - geopolitical conflicts, shifts in trade policies, and changing labour markets driven by AI adoption.

While inflation appears to be under control for now, the challenges of supply chain disruptions and fluctuating commodity prices remain unpredictable. With an election in 2026, a lot is going on.

Our View: Experts generally agree that the Reserve Bank will keep inflation as a central focus, which could lead to the OCR stabilising between 3.00% and 4.00% through to 2030. However, globally and domestically, unforeseen events can significantly impact the OCR, often in ways that are difficult to predict, even with hindsight.

Further information: Trusted sources on interest rate predictions and interest data include Trading Economics and interest.co.nz. For more information about understanding the OCR, please visit our dedicated OCR guide.

Important: Why trust MoneyHub? Are you selling financial products that are affected by interest rates?

  • ​MoneyHub is focused on providing comprehensive consumer comparisons and objective information. Our website helps millions of New Zealanders make better financial decisions every year with information they can rely on.
  • Our expert team rigorously researches every resource we publish. We neither sell or broker home loans or term deposits,  nor do we encourage readers to take out a loan, buy an investment property, personal loan or anything else.
  • While MoneyHub sometimes may earn a commission from specific partners on offers and links, we create all our resources to help New Zealanders save and invest more and spend less while minimising debt costs.
  • Overall, our continued focus is to help every New Zealander make the most informed personal finance decisions.

MoneyHub Founder Christopher Walsh shares his thoughts about interest rates, debt and the risks:

"Taking on debt today is more dangerous than it has been in years, even if interest rates have fallen back from recent highs of 2023 and 2024. Economic uncertainty is growing, and even though the OCR has fallen, inflation and the general cost of living increases are likely here to stay. For many everyday New Zealanders, the squeeze is real - rising repayments on personal loans and mortgages are eating into disposable incomes, and this means less money to live, let alone save and invest.

I'm not against anyone buying a home - if you own a home, you're provided an unrivalled level of security. I would argue that homeownership is one stable investment in an era of AI, offshoring and a problematic economy. However, there is no need to double down and buy more homes. Using home equity to fund an investment property is a significant risk that relies on housing delivering 'capital gains'. At the same time, you pay rates bills, home/landlord insurance policies, deal with problems and, if the rent won't repay the mortgage, subsidise the rent with your after-tax salary income.

The hard truth is that additional debt to buy an investment property (or car) bets against your future while the lender makes guaranteed profits paid for by you. Yes, a house in Auckland may have risen from $100,000 in 1985 and sell for $2m in 2025, but will buying an investment property for $1m mean it's worth $20m+ by 2045? That's highly unlikely. I understand the pull to invest in something you can sell, but borrowing to buy arguably expensive homes at a time of economic volatility is a gamble many New Zealanders are beginning to lose, as outlined by this RNZ report in October 2024. For every story of success in publications like OneRoof, there are countless stories of stress, anxiety, and hardship caused by property becoming far less of a 'sure thing' per this July 2024 RNZ story.

If you're not looking for debt to buy an investment property, other debt can still hold you back. For example, taking out car loans or relying on personal loans may feel like a way to get ahead. However, signing up for such debts often sets people back because interest costs create a long-term chain that can lock families into financial stress for years. The emergence of services like Money Sweetspot confirms that even those in stable jobs with good incomes regularly overcommit to debt and struggle to keep up with repayments before drowning when the unexpected happens: job losses, emergencies, or further rate hikes.

Things are changing fast in New Zealand. I argue that the current financial climate demands caution, discipline, and a focus on reducing risk, not increasing it. Now is not the time to take on unnecessary debt, especially when the outlook for rates, house prices and the economy remains so uncertain.

The ethos of MoneyHub is to help New Zealanders build financial resilience - saving and investing more, spending less, and thinking carefully about any purchase or investment that relies on borrowed money.

My view is simple - if you're in any doubt about borrowing money, don't do it. The long-term costs of taking on mortgage debt (or any type of loan, such as car finance and personal borrowing) can compromise your financial future. There is no shame in stepping back from a deal and reassessing your priorities. Debt (beyond the mortgage on the home you live in) is almost always not an opportunity; it's often a trap, and the cost of miscalculating can be devastating for you and your family. It's almost always best to say no when you don't to take on need additional debt. 

An investment property may be a way to 'flex', keep up appearances and become part of a 'club', but you aren't told about the downsides, and those that sell the dream may go quiet when things don't work out. Plenty of other proven and profitable investment opportunities exist outside rental housing". ​
Christopher Walsh
MoneyHub Founder

Buying Homes and Housing Supply - What You Need to Know About Interest Rate Changes

​The relationship between interest rates and the housing market is complex, with wide-reaching implications for buyers, sellers, and developers. This section explains how changes in the OCR affect the housing supply, homeownership cost, and market trends to help you confidently navigate the property market.

Should You Buy a Home Now or Wait (As a First-Home Buyer)?

  • ​Buying your first home is one of the biggest financial decisions you'll make, and timing plays a critical role. High mortgage rates, as seen throughout 2023 and for most of 2024, can significantly strain household finances - many New Zealanders have struggled under these conditions, as highlighted in this 2024 story from RNZ.
  • However, waiting for interest rates to drop also has risks. Lower rates often fuel demand, driving up property prices. The savings from reduced interest repayments could be offset by a larger purchase price, leaving you in the same financial position - or worse.
  • Know This: If you're financially ready and can afford the repayments at current rates, buying a home now can provide stability and allow you to start building equity. However, if the current market stretches your budget too thin, waiting and focusing on growing your deposit or improving your affordability are both proven ways to prepare for home ownership. 

Understanding How a Changing OCR Impacts the New Zealand Housing Supply

​When the OCR changes, it directly affects the borrowing costs for developers and construction companies. A lower OCR reduces interest rates on loans, making it cheaper to finance housing projects. With cheaper money available, developers are usually encouraged to build more homes, which, when completed, increases the housing supply. However, a higher OCR increases borrowing costs and makes new developments less profitable. It can also delay and bankrupt ongoing projects, which stalls the supply of new homes coming to market.

Important: While a lower OCR can incentivise more housing projects to get underway, several factors can limit the impact on supply:
  • Regulatory hurdles: Councils have become incredibly strict in recent years as they have been liable for building defects they originally signed off on. This means strictly applied zoning laws, building consents and compliance regulations can slow down or block new developments.
  • Labour and material shortages: The construction industry is highly dependent on skilled labour and building materials. If there is a lack of builders and materials (as seen during the COVID-19 pandemic), the benefits of lower borrowing costs may not translate into significantly more housing, given it's not possible or too expensive to build in the first place.
  • Economic confidence: Developers need assurance that demand will exist when projects are completed. No one wants to lose money on a housing project, and even a low OCR may not encourage investment in large-scale home building if there are economic headwinds such as higher unemployment and a lack of house price growth.
  • Supply chain issues: Global disruptions in material supply can increase costs and delay projects, offsetting the lower financing costs from a reduced OCR.

How to Find the Best Mortgage Rate

New Zealand has expensive housing, so it's essential to lock down the best mortgage terms if you're a first-time home buyer or remortgaging. We suggest talking to a mortgage broker well in advance to lock in a competitive deal early. You may also want to explore tailored options like offset, revolving and floating or fixed mortgages if there's a benefit to your situation for using these.

How OCR Changes Affect Housing Costs and House Prices

How OCR Changes Affect Home Loan Interest Rates

What changes?
​When the Reserve Bank adjusts the OCR, it influences every bank's borrowing cost, leading to mortgage rate changes. A lower OCR usually results in banks reducing floating mortgage rates quickly, while fixed mortgage rates adjust more gradually within a week or so, as the market moves and banks want to stay competitive.

What does it mean for you?
A decrease in the OCR can lead to immediate savings for homeowners with floating-rate mortgages as their repayment amounts are recalculated to reflect the lower interest rate. Fixed-rate mortgage holders, however, won't see an impact until their fixed term expires and they refinance. Conversely, when the OCR rises, mortgage rates tend to increase, making borrowing more expensive and squeezing household budgets.

Our example:
If the OCR is cut by 0.50% and you refinance your $500,000 mortgage 12 months later for three years at a new fixed rate of 6.00% (down from 6.50%), your monthly repayment would decrease. On a 25-year term:
  • Previous Monthly Repayment (6.50%): ~$3,375
  • New Monthly Repayment (6.00%): ~$3,211
  • Monthly Savings: ~$164
  • Annual Savings: ~$1,968

However, if the OCR increases by 0.50% and you refinance to a fixed rate of 7.00%:
  • New Monthly Repayment (7.00%): ~$3,530
  • Monthly Increase: ~$155
  • Annual Increase: ~$1,860

How OCR Changes Affect House Prices

​What changes?
OCR changes influence borrowing costs, which directly impact the housing market. A lower OCR typically reduces mortgage rates, increasing buyers' affordability and driving up house demand. This can lead to rising house prices in theory, but it also depends on the state of the economy, job market and housing supply. Conversely, a higher OCR increases mortgage costs, often reducing demand to buy a home given how expensive it will be, and therefore putting downward pressure on house prices.

What does it mean for you?
For first-time home buyers, a lower OCR may make homes more affordable because the interest rate repayments will be lower, but it can also mean entering a competitive market with higher property prices. Low OCR rates can boost demand for vendors, potentially increasing sale prices. However, a higher OCR can make selling more challenging, with buyers facing reduced borrowing power and the prospect of having a home sit on the market for weeks or even months, and maybe not selling at all unless the price is reduced.

Our example:
If a buyer qualifies for a $700,000 loan at a mortgage rate of 6.50%, their monthly repayment is ~$4,400. If the OCR is reduced and their rate drops to 6.00%, they can afford a larger loan or a higher-priced property with the same repayment. However, if the OCR increases and the mortgage rate rises to 7.00%, their borrowing capacity decreases, limiting what they can afford.

How OCR Changes Affect Rent Prices

What changes?
OCR changes can indirectly impact rent prices by influencing landlord costs and housing demand. A lower OCR reduces mortgage costs for landlords because interest rates drop, but increased demand for housing may push rents higher. A higher OCR raises landlord costs with increased interest costs, which could lead to rent increases. However, what actually happens to rents will vary by city and town - an OCR drop will arguably affect rentals in Wellington and Queenstown differently because of local economic conditions and demands.

What does it mean for you?
Renters may see short-term stability in rents during periods of higher OCR, but landlords could pass on increased costs over time when rent reviews come up. Conversely, lower OCR rates may lead to higher rents as housing demand rises.

Our example:
If a landlord's mortgage rate drops from 6.00% to 5.50% on a $500,000 loan, their monthly repayment decreases by ~$130. They may choose to maintain rents at current levels, but if there is rising demand, they may want to increase rent by $20-$30 per week, adding $1,000-$1,500 annually to their income.

Our View: New Zealand landlords all behave differently, so while there is a view that a subset operate with a 'heads I win, tails you lose' approach, everyone reacts differently. We can't predict how a change in the OCR will influence a specific rental home's weekly rent price. Instead, the purpose of this example is to explain some of the factors at play. ​

Important: A Warning About Investment Property Agencies, Projected Capital Growth, Interest Rate Costs and Other Important Risks You Can't Ignore

  • Interest rates are a critical factor in property investment, and small changes can have a massive impact on cash flow and affordability.
  • Predicting interest rates involves understanding economic conditions, but rental properties have more risks than changing interest rates.
  • Our gjuide, 20 Property Investment Risks You Can't Ignore, explains key considerations should you be thinking about buying an investment property.

How OCR Changes Affect Investments

​How OCR Changes Affect Term Deposits and Savings Accounts

​What changes?
When the OCR changes, banks adjust the interest rates they offer on term deposits, PIE term deposits, savings accounts and notice saver products. A lower OCR often reduces interest rates for new term deposits and savings accounts, sometimes within days. Fixed-term products like existing term deposits remain unaffected until they reach their mature data.

What does it mean for you?
Lower interest rates mean reduced returns for savers, impacting income for those relying on interest. This was an issue during the 2020 pandemic when term deposit interest rates fell to around 1% p.a. For existing term deposit holders, your current rate is locked in until maturity, but renewing at a lower rate will decrease your future earnings. Conversely, an OCR increase boosts savings rates, rewarding savers with higher returns.

Our example:
If you invest $100,000 in a term deposit at 4.00% for 12 months, your interest earned is around $4,000 (before tax). If the OCR drops and the renewal rate decreases to 3.50%, your interest for the following year will reduce to around $3,500, a loss of $500 in annual income. Alternatively, if the OCR rises and the renewal rate increases to 4.50%, your earnings would rise to around $4,500, adding $500 more to your income. All figures are before tax.

How OCR Changes Affect KiwiSaver Balances

What changes?
Some KiwiSaver funds are influenced by OCR changes, while others are not. Funds most likely to be affected include conservative and cash funds, which invest in New Zealand Dollar-held fixed-interest assets such as term deposits and call accounts. A lower OCR reduces returns for conservative and cash funds as interest rates on fixed-income assets decline. Conversely, lower rates can stimulate equity markets, potentially benefiting growth funds, but it depends on where the KiwiSaver fund invests because an increasing number follow global markets (given the greater growth opportunities) rather than NZX-listed investments. KiwiSaver funds investing globally are less likely to be affected by OCR changes.

What does it mean for you?
Conservative and cash fund investors may see slower growth, while NZX-focused growth fund investors could benefit from rising share prices if lower interest rates generate greater company profits. However, higher OCR rates may create the opposite effect, with cash funds performing better and NZX-focused equity funds facing more challenges.

Examples:
1. Conservative Fund (40% Allocated to Cash/Fixed Assets) Conservative funds allocate a significant portion to fixed-interest assets, such as term deposits and bonds, which are directly impacted by OCR changes. While the remaining portion of the Fund (typically invested in equities) may be less sensitive to the OCR, the cash/fixed portion plays a key role in determining the overall returns.
  • Initial Return: With a 4.50% annual return on the fixed-interest portion ($20,000 out of the $50,000 fund), the Fund generates $900 annually.
  • After a 0.50% OCR Drop (to 4.00%): The fixed-interest portion generates $800, a loss of $100 in annual growth.
  • After a 0.50% OCR Increase (to 5.00%): The fixed-interest portion generates $1,000, adding $100 to annual growth.

2. Cash Fund (100% Allocated to Cash/Fixed Assets)
Cash funds are entirely invested in fixed-interest assets like term deposits and call accounts, making them highly sensitive to OCR changes. As a result, any adjustment to the OCR has a direct and pronounced impact on returns.
  • Initial Return: At 2.50%, the $50,000 fund generates $1,250 annually.
  • After a 0.50% OCR Drop (to 2.00%), the Fund generates $1,000, a loss of $250 in annual income.
  • After a 0.50% OCR Increase (to 3.00%), the Fund generates $1,500, adding $250 to annual income.​

How OCR Changes Affect the Sharemarket

What changes?
A lower OCR reduces borrowing costs for NZX-listed companies, often encouraging expansion and investment, which can boost sharemarket performance because there is a belief they'll make more profits and their cost of servicing debt will decrease. A lower OCR makes dividend-paying shares more attractive than low-yield savings accounts. Conversely, higher OCR rates can dampen NZX performance as borrowing becomes more expensive.

What does it mean for you?
Investors in growth-focused portfolios or equity-heavy funds investing in the NZX may benefit from market upswings during periods of lower OCR. Conversely, higher OCR rates can suppress NZX market returns, particularly for companies reliant on debt financing.

Our example:
If the OCR is cut by 0.50%, and sharemarket values rise by 5%, a $100,000 investment in an NZX50-tracking ETF could grow to ~$105,000. If the OCR increases by 0.50%, leading to a market drop of 3%, the same portfolio could decrease in value to ~$97,000. However, many factors are at play, all of which reinforce the importance of a long-term investment strategy.

How OCR Changes Affect Bond Prices

What changes?
OCR changes influence bond yields and prices. A lower OCR often leads to lower bond yields, increasing the price of existing bonds. Conversely, a higher OCR increases yields, reducing the price of existing bonds.

What does it mean for you?
If you hold bonds, a lower OCR can increase the market value of your existing investments. However, new bonds issued in a lower OCR environment will offer (relatively) lower returns. A higher OCR can make new bonds more attractive due to higher yields but may decrease the value of your existing bonds.

Our example:
If you own a 10-year NZ government bond with a 3.50% yield and the OCR drops, the bond’s value may rise as investors seek higher-yielding options. Conversely, if the OCR rises and new bonds offer a 4.00% yield, the market value of your 3.50% bond may fall. Our guide to investing in bonds and corporate bonds explains bonds further. ​

How OCR Changes Affect Debt Costs and the General Cost of Living

How OCR Changes Affect Personal Loans and Car Finance

What changes?
Personal loans and car finance interest rates are tied to the OCR. A lower OCR often reduces interest rates for these products, making borrowing cheaper. However, lenders may not pass on the full savings, and affordability and credit history always influence individual rates.

What does it mean for you?
Borrowers may see reduced monthly repayments or be able to access cheaper financing for new loans. However, when the OCR increases, borrowing costs rise, and while almost every personal and car loan has a fixed interest rate for the loan term, loan rates increase, which means the total borrowing cost is higher.

Our example:
If you are offered a five-year $15,000 car loan at 10%, your monthly repayment will be around $319.
However, if there is a 0.25% OCR cut (and the lender drops their interest rate offer to 9.75%) before you sign, your repayment would reduce to approximately $317, saving you about $30 per year.

Overall, the margins on personal loans and car finance are much higher than those on mortgages or term deposits, meaning OCR changes have a less significant impact on monthly repayment costs.

How OCR Changes Affect Credit Cards

What changes?
Credit card interest rates are generally higher than other forms of debt and are less directly tied to OCR changes. However, changes in the OCR can indirectly influence rates through lender funding costs.

What does it mean for you?
A lower OCR is unlikely to immediately impact credit card rates, but banks may introduce promotional offers (such as balance transfer offers) to attract borrowers. A higher OCR may lead to increased rates on outstanding balances, making credit card debt more expensive, but banks tend to move slowly on this.

Since OCR changes have minimal influence on credit card interest rates, providing an example wouldn't be meaningful due to the negligible impact.​

​How OCR Changes Affect Student Loans

Anyone living and working in New Zealand won't pay interest on their student loan; interest charges only apply to New Zealanders living and working overseas. The government sets the interest rate for student loans for borrowers based abroad, and it is not directly tied to the Reserve Bank's OCR changes. You can see the current rate on the IRD website.

What changes?
The interest-free status for student loans for borrowers living in New Zealand remains unaffected by OCR changes. However, if you live overseas and pay interest on your student loan, you may be affected by a change in the exchange rate.

What does it mean for you?
For New Zealand-based borrowers, OCR changes have no impact on student loan repayments or balances, as loans remain interest-free for residents. However, while the government-set interest rate remains fixed for overseas borrowers, OCR changes can indirectly influence the New Zealand Dollar (NZD) exchange rate.

When the OCR increases, the NZD typically strengthens, making converting foreign income into NZD more expensive. This can raise the relative cost of repayments for borrowers earning in another currency, such as AUD, GBP, or USD. Conversely, a lower OCR can weaken the NZD, potentially reducing the repayment costs for New Zealanders working and earning abroad.

Our example:
If you're an overseas borrower with a $30,000 student loan at an interest rate of 3.3%, $990 in annual interest will be charged. If you're earning in Australian Dollars (AUD) and need to repay NZ$990 per year, the cost depends on the exchange rate:


When the NZD strengthens due to an OCR increase:
  • If the exchange rate shifts from 0.92 AUD/NZD to 0.95 AUD/NZD, the repayment cost rises from ~$910 AUD to ~$941 AUD, an annual increase of $31 AUD.

When the NZD weakens due to an OCR decrease:
  • If the exchange rate shifts from 0.92 AUD/NZD to 0.89 AUD/NZD, the repayment cost drops to ~$881 AUD, saving $29 AUD annually.

How OCR Changes Affect Small Business Financing

What changes?
The OCR has some impact on lending rates for small businesses. In theory, a lower OCR reduces the cost of borrowing, encourages business investment and growth, or makes lines of credit and business loans cheaper to service. A higher OCR increases borrowing costs, discouraging expansion and tightening cash flow.

What does it mean for you?
For small business owners, a lower OCR can create opportunities for growth and stimulate the economy and demand, while a higher OCR may necessitate cost-cutting measures to manage higher loan repayments and lower sales and profits.

However, business loan interest rates are sensitive and driven by risk - lenders offer interest rates based on risk and many applicants find it hard to get approved, irrespective of a lowering OCR, due to risks around the industry, market conditions, trade history and other factors.

For these reasons, we cannot provide a relevant example, given that OCR is only one contributor to business loan interest rates.

How OCR Changes Affect the Cost of Living and the Inflation Rate

What changes?
OCR changes have a complex relationship with the cost of living, intertwining economic policy, market behaviour, and global events. A lower OCR typically stimulates borrowing and spending, which can lead to inflation as demand for goods and services increases.

However, inflation isn't solely driven by domestic borrowing. Recent years during the pandemic have shown New Zealanders how global supply chain disruptions, geopolitical instability, and commodity shortages can magnify inflationary pressures, making essentials like food, petrol, and power more expensive regardless of OCR levels.

Conversely, a higher OCR cools inflation by curbing borrowing and spending. While this can stabilise prices over time, it often comes at a cost: slower wage growth, higher unemployment, and tighter household budgets, leaving many families feeling the squeeze. Despite OCR drops in 2024, there is still a cost of living crisis even if inflation is reported to be levelling off, given the other economic factors at play throughout New Zealand.

What does it mean for you?
The cost of living is deeply tied to inflation, and the OCR is just one tool the Reserve Bank uses to manage it. When the OCR is lowered, borrowing becomes cheaper, but rising demand can drive up prices for everyday essentials. The low OCR during the COVID-19 pandemic, while necessary to stimulate a disrupted economy, inadvertently contributed to skyrocketing house prices and created conditions for rampant inflation, leaving many households worse off.

On the other hand, raising the OCR to fight inflation can stabilise prices but make life more expensive in other ways. For example, mortgage rates climb, credit becomes costlier, and businesses face higher borrowing costs, which can slow hiring and wage growth. It's a delicate balancing act that affects every New Zealander differently, depending on their financial situation. And because of this, too many factors are at play to give meaningful examples of the effects of one OCR change.

How OCR Changes Affect the New Zealand Economy

​How OCR Changes Affect the Job Market and Unemployment

​What changes?
A lower OCR encourages businesses to borrow and invest, which can lead to job creation and lower unemployment. Conversely, a higher OCR can slow business growth and hiring, potentially increasing unemployment.

What does it mean for you?
Generally, when the OCR is low, job opportunities may expand in sectors benefiting from economic growth. However, if the OCR rises, businesses may cut back on hiring or even reduce staff to manage costs, increasing job insecurity.

However, in 2024, New Zealand had a lower OCR than in 2022 and 2023, but unemployment was higher, and the job market troubled. This shows that lowering the OCR doesn't lead to a better job market, especially when government spending reduces and economic activity weakens due to a lack of consumer and business confidence. For this reason, there is no benefit in providing an example.

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​What changes?
OCR changes often influence the value of the NZD; a lower OCR often weakens the NZD, making exports more competitive internationally but increasing the cost of imports. A higher OCR typically strengthens the NZD, benefiting importers but making exports less competitive.

What does it mean for you?
Export-focused businesses may thrive when the OCR is low, potentially boosting regional economies with a weak NZD and greater export revenue. However, higher costs for imported goods can increase prices for consumers, affecting everything from electronics to food products.

Our example:
After an OCR cut, a local wine exporter sees increased demand as the NZD weakens, boosting profits by 10%. At the same time, the cost of imported goods like smartphones rises by 5%, adding $50 to the price of a $1,000 device.

How OCR Changes Affect International Travel Costs

What changes?​
OCR changes can influence the exchange rate of the NZD; a lower OCR often weakens the NZD, making international travel more expensive as the NZD buys less foreign currency. A higher OCR strengthens the NZD, reducing the cost of overseas expenses.

What does it mean for you?
It's always cheaper to travel when the NZD is strong, given the costs of accommodation and food and moving around overseas. However, if the NZD is weak, travel will be more expensive. Of course, the impact depends on what country you're visiting, the exchange rate for its currency, and the general cost of living where you travel. Our guide to destinations where the NZ Dollar is strong right now explains this further and gives ideas.

Our example:
If the NZD weakens from 0.65 to 0.60 against the US dollar after an OCR cut, US$5,000 spent in America would cost around NZ$8,333 instead of NZ$7,692. The same trip will be cheaper if the OCR increases and the NZD strengthens against the USD.

How OCR Changes Affect Consumer Confidence

What changes?
As explained above, OCR changes influence consumer confidence by affecting borrowing costs, savings returns, and overall economic stability. A lower OCR may boost confidence as borrowing becomes cheaper, while a higher OCR can make consumers cautious due to rising costs.

What does it mean for you?
During periods of low OCR, consumers may feel more optimistic about spending and borrowing. A higher OCR can reduce spending, impacting the broader economy and job market.

However, there are a lot of economic factors at play, so giving an example wouldn't be helpful to explain the point further. 

Frequently Asked Questions Specific to Interest Rate Predictions and Mortgages

​What does an OCR increase mean for first-home buyers?

An OCR increase generally leads to higher mortgage rates, making home loans more expensive and reducing the borrowing capacity of first-home buyers. A high OCR usually means it's harder to afford a property, but it may also slow house price growth, creating opportunities for those with larger deposits or lower borrowing needs. The reality is it depends specifically on the property and area you plan to buy in, as many factors are at play.

Should I fix my mortgage if interest rates are expected to rise?

If interest rates are predicted to rise, fixing your mortgage at current rates can protect you from future increases. However, you need to consider the fixed rate term and the likelihood of rates stabilising or falling in the longer term. Many New Zealanders missed the entire 'low-interest period' from 2020 to 2023 by fixing it for five years, from 2018 to 2019. Fixing for one year is worth considering to keep options open, or you can apportion your mortgage into different fixed terms.

What happens to my mortgage if interest rates rise after I've fixed my rate?

If you're on a fixed-rate mortgage, your repayments remain unchanged until your fixed term ends. When refinancing, you may face higher rates, increasing your monthly repayments. It's best to be aware of current home loan interest rates so you can make an informed decision when renewing.

How do interest rate changes impact rental prices?

Landlords with mortgages may pass on higher borrowing costs to tenants when the OCR rises, potentially leading to rent increases. Conversely, lower OCR rates can reduce landlord costs, but rising demand for housing could still push rents higher in competitive areas. Generally, rents don't fall unless there's an oversupply of rental housing, something New Zealand hasn't been too affected by despite variable conditions.

Should I wait to buy a house if interest rates are predicted to drop?

You cannot time the market, but it's understandable to want to wait, which could save you money if rates drop significantly. While lower rates may reduce borrowing costs, house prices could rise during the same period, eroding potential deposit savings.

How do floating mortgage rates compare to fixed rates during OCR changes?

Floating rates adjust almost immediately following OCR changes, offering flexibility but exposing borrowers to rate hikes. Fixed rates provide stability and protection against future increases but may lock you out of savings if rates drop.

Why do some homeowners struggle to refinance when interest rates rise?

Rising rates increase the required income to qualify for a loan, potentially disqualifying borrowers with tight budgets or high debt-to-income ratios. This is especially true for households already stretched thin by rising living costs or those with minimal equity in their homes.

Can interest rate changes affect how much deposit I need for a home?

OCR changes indirectly influence deposit requirements by impacting house prices. When rates are low, rising prices may require larger deposits, while higher rates can reduce prices, potentially lowering deposit requirements in a cooling market.

General Frequently Asked Questions about the OCR

How does the Reserve Bank decide whether to raise or lower the OCR?

The Reserve Bank adjusts the OCR based on economic indicators like inflation, unemployment, GDP growth, and global economic conditions. Its goal is to maintain price stability and support sustainable economic growth. For example, if inflation is too high, the Reserve Bank may raise the OCR to curb spending and borrowing. Conversely, if the economy slows, it might lower the OCR to stimulate growth.

How quickly do banks adjust mortgage rates after an OCR change?

Banks typically adjust floating mortgage rates within a few days of an OCR change. Fixed-rate mortgages, however, depend on market conditions and may take longer to reflect OCR changes as wholesale funding costs and competition among lenders influence them.

Will interest rates ever return to pre-COVID lows?

Pre-COVID interest rates were historically low due to unprecedented global economic conditions. While rates may decrease in the future, a return to those levels is unlikely without a significant economic downturn or global financial crisis. Borrowers should prepare for a "new normal" of moderately higher rates.

How do interest rate predictions affect my KiwiSaver returns?

Interest rate changes influence KiwiSaver funds differently based on their asset allocations. Conservative and cash funds often see reduced returns during periods of lower OCR due to declining fixed-income yields, while growth funds may benefit if equity markets respond positively. It's essential to align your KiwiSaver fund with your long-term goals and risk tolerance.

Why do interest rate predictions vary between experts?

Different economists and banks use varying models and assumptions when forecasting interest rates. However, no person or organisation can predict with certainty, given that factors like global market conditions, Reserve Bank policy, inflation expectations and political decisions continue to diverge predictions.

Can interest rate predictions be trusted?

Interest rate predictions are educated estimates based on current data, but unexpected events, such as sudden supply chain issues, natural disasters or global financial crises, can cause rates to diverge from forecasts. For this reason, it's useful to be aware of the predictions but know that they are not a guarantee or confirmation.

Our Conclusion

  • We believe that interest rate predictions are best when they help explain the "why" and "how" behind the changes so you can make the right decisions for you and your family.
  • New Zealand's unique economic landscape means the ripple effects of interest rate adjustments are felt in everything from the housing market to the income generated from term deposits and savings accounts. When interest rates change, a lot happens throughout New Zealand.
  • Our interest rate predictions research has been published to help everyday New Zealanders navigate the shifting sands of mortgage rates, housing affordability, investment returns, and the cost of living. Your financial future deserves nothing less than the best management, which is much easier when you understand the basics.
  • MoneyHub is published to put you first and act as your research tool in an ever-changing financial world. We appreciate that you trust us to guide you around interest rates. 
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