Interest rate predictions from NZ economists: 2026 & 2027

There’s a consensus amongst forecasters that interest rates have passed the bottom of the cycle and they’re on their way up.

• They expect six months and floating rates may stand still for a month or two before increasing from late 2026 until at least late 2027.
• One year rates are already increasing and most forecasters see them peaking in the mid to high 5s.
• Longer term rates like 2, 3 and 5 years are already increasing - and will continue to increase throughout 2026 and 2027, and may enter the sixes.

Keep in mind that these forecasts are based on current information. The global and domestic economies are facing a number of headwinds and wars that could change things at any moment.

ANZ Bank says interest rates are slowly but steadily going to increase, until they plateau late this year and through 2027. In a May report hey disagreed with the market, which is pricing in more increases, starting later, and say that the one and two year are the best value term right now:

“So, while our projections and expectations for a limited series of OCR hikes suggest that the 1-2-year part of the mortgage curve is the sweet spot, because those rates offer a good balance of cost and certainty, we can’t stress enough that things could change quickly.”

The bank adds that uncertainty is high, so it’s also worth considering longer terms:

“... Any forecast should be taken with a grain of salt at this juncture. The value of certainty is different for everyone depending on their situation and also changes through time – even though it has become more expensive, it arguably has also become more valuable.”

Westpac hasn’t provided a detailed interest rate forecast in their recent reports and commentary, but their OCR forecast says it all. Their economists see the OCR hiking in September, then peaking in late 2027 at 4.25%. This is higher than ANZ’s forecasts, and if accurate, would mean that one, two and three-year rates could peak in the mid-to-high fives (three and five year rates may even enter the sixes).

ASB Bank’s economists are suggesting all rates are set to increase from their current levels in the short and longer-term. See more detail in their interest rate strategy overview table from their April Home Loan Report below.

One of the most interesting takeaways from their report is that rates will settle much higher than they have in the recent past:

“Despite the challenging current economic conditions, it’s important to note the ASB Economics team think that mortgage interest rates will settle in a much higher range than the historic lows struck during COVID19. We suggest borrowers pick a strategy that suits personal budgets (including a tolerance for changing interest rates), the need for flexibility, as well as the goal of minimising interest rate costs.”

BNZ haven’t released an interest rate forecast, but their OCR Forecasts are roughly in line with Westpac’s. They expect hikes to start in September 2026, and finish in late 2027 at 4%.

If this is accurate, all else equal, most interest rate terms will climb into high 5%, low 6% territory.

Kiwibank hasn't provided a concrete rate forecast recently, but some of their recent commentary recommends the RBNZ pause rate hikes in 2026:

“In our view, the RBNZ’s best course of action is to watch, wait, and weigh up the facts once they have the information in front of them. Households and businesses who’ve already seen their costs rise don’t need a rise in interest rates to dampen their demand – because this is not a demand story, this is not Covid. Raising interest rates risks a repeat of past mistakes, potentially inducing a recession. It could be reckless.”

What happens depends entirely on global and domestic economic conditions, but in the best case scenario for borrowers, if RBNZ follows the train of thought of Kiwibank economists, we could see no OCR hikes in 2026. This would mean lower rates than the above forecasts for the rest of the year.

Lender’s advertised rates are often higher than the actual rates they provide many customers. Speak to a mortgage broker to ensure that you get the best available rate from your lender.

The general consensus amongst bank forecasters is that the OCR is going to increase at least once in 2026. The jury’s out as to whether it’ll end up at 2.5%, 2.75% or 3.0% – but one thing’s for sure, most economists see the rate going up in 2026.

In their last Monetary Policy Statement the RBNZ indicated that two increases are very likely, and that three is a remote possibility - with a forecasted 2.8% OCR by December 2026.

The Reserve Bank expects the rate to slowly increase until 2028/2029, reaching a peak of 3.3. Other forecasters agree more OCR increases are coming, but disagree on where the rate will peak. BNZ and Westpac are on the high side at 4.0% and 4.25%, respectively – whereas ANZ, and ASB are thinking much lower at 3.25% and 3.0%. That’s a full 1.25% gap between the highest and lowest.

What does this tell us? That uncertainty is high, and while most are sure the OCR must increase - everyone disagrees on how fast and how far.

Unfortunately, nobody can tell you how to manage your mortgage. What’s most important is that you get advice from an advisor you can trust, and structure your loan in a way that suits you and helps you reach your goals (more on getting advice later). 

With that disclaimer out of the way, here’s what the experts are saying:

Ed Mcknight the Head Economist at Opes Partners has a simple strategy if you’re going for the lowest possible rate: “My personal go-to mortgage strategy is to fix my mortgages for the 1-year rate no matter what. Previously, this has led to a low average interest rate.”

According to Opes, this would have resulted in the lowest interest rate of any term over the last twenty years. 

Infometrics chief forecaster, Gareth Kiernan, conducted analysis of which rates were most cost effective, and found that shorter term rates generally won out. He told RNZ: 

"It's really difficult to pick, but shorter fixed terms will generally be more cost-effective. The time you should consider longer terms is when they've just started pushing upwards - even if they're the highest rates compared to shorter terms on offer at the time."

The last sentence is an interesting one, given longer term rates may have just started increasing in the last several months. 

Economist Tony Alexander says that due to economic uncertainty around the US economy, and the potential that our monetary policy easing cycle is at its end, it’s hard to make any concrete predictions about where rates are headed. That said, he does prefer the three year fix:

“If I were borrowing at the moment, I’d personally opt for fixing three years ....”

Frances Cook wrote a brilliant article in May covering seven mortgage tips. One of the best tips was from Nicole Pervan, GM of home lending at Kiwibank, who recommended thinking about what you’re expecting to happen in your life in the next 1-5 years before fixing:

“If you’re about to go on parental leave, or you're thinking of selling in the next year, that should affect your choice between fixed or floating,” she says.

“Certainty can be just as valuable as a sharp rate, especially when you’re budgeting with tight margins.

By splitting your mortgage into different, staggered fixed term durations you gain extra security and flexibility. The idea is that your fixed terms don’t all expire at the same time and your costs don’t suddenly increase – at the same time you can still benefit from falling rates. 

"Consider a mix of fixed-term durations including 6 months, 1 year, 2 years and 5 years," he says.

This strategy means you will never get the lowest rate that you might have if you’d timed the market, but it also reduces the risk of paying a much higher rate than you need to. 

Break even analysis is a way to help decide which interest rate is likely to be the better deal in future. It’s a tricky concept to explain so let’s look at an example:

You’re considering whether to fix for one year at 5.99% or two years at 5.69%. 

• The total interest charge for a two year rate would be 5.69 x 2 = 11.38% total. 

• That means if we fix for one year at 5.99% and then refix a year later at anything under 5.39% the one year rate is a better deal (Here’s how we worked that out – two year total interest cost 11.38% - one year interest cost 5.99% = 5.39%).

• The above calculation isn’t 100% accurate because of compounding interest, but it’s close. 

• It tells us that if we think one year interest rates will fall below 5.39% in a year, we should go for one year to minimise the interest we pay. If we think they’ll be above that number, two year is a better deal. 

These calculations are, of course, hypothetical because we don’t have a crystal ball, but they can be a useful way to make decisions based on what we think is likely to happen.