The Reserve Bank just hit hold. Here’s why you shouldn’t expect that to last
Wednesday, 18 February 2026
In recent years we’ve had first-hand experience of how significant the impact of the OCR can be on both homeowners and savers.
The high interest rates we had off the back of Covid pushed many homeowners to the brink (some even beyond), but we’ve since had some relief with the OCR dropping.
On the flip side, savers have had to hustle over the past year to find decent returns when term deposits simply aren’t delivering the returns they once did.
At a time when we’re still going through a recovery, the Reserve Bank’s OCR decisions and comments this year will reverberate around the country.
As widely expected, the Reserve Bank today kept interest rates at 2.25% for the time being.
This decision was well telegraphed and itself isn’t as important as the comments the Governor made about the state of the economy and where rates are likely to go next.
The first Monetary Policy Statement under the watch of Reserve Bank Governor Anna Breman spoke about the careful balancing act between allowing our economic recovery to continue and ensuring that inflation remained in check.
While the economy is still recovering, it’s important to give that recovery the time to bed in appropriately. However, the statement also added that if the economy recovers as expected, we could see interest rates tick up earlier without dampening the economy.
The point here is the economy is still being stimulated at the moment.
You can think of the OCR as either a fridge or an oven, depending on which way it goes.
When the OCR goes up, the goal is to cool the economy down. Borrowing gets more expensive, meaning your mortgage hits harder. People spend less, businesses slow their hiring, and eventually, inflation drops.
On the other hand, when the OCR goes down, the bank is trying to heat up the economy. Borrowing becomes cheaper, leaving more cash in your pocket to spend. Businesses feel bolder, they invest more, and the whole economy starts to heat up. But you don’t want things to get too hot, which can lead to inflation starting to char the economy.
What the Reserve Bank wants to avoid is getting to the point where the charring sets in, which is why it has not diverged from the plan to raise rates once it feels comfortable the economic recovery has bedded in properly.
Where to next for the OCR?
Westpac chief economist Kelly Eckhold is among a large contingent of economists who have forecast that the OCR will rise over the next 12 months.
Within the next year, Eckhold says the Reserve Bank will likely lift interest rates to the mid-3% range from where we are at the moment.
Asked how quickly this could happen, Eckhold maintains we can expect the OCR to start lifting after December.
From there, he anticipates the hikes will come in quick succession to bring the OCR to the mid-3% zone within a 12-month window.
The Reserve Bank is usually aiming for the so-called ‘goldilocks zone’, where the impact is neither stimulatory nor stifling.
“I think the neutral zone is probably close to 3.75%, but reasonable people will disagree on that,” says Eckhold.
“The Reserve Bank itself estimates it’s between 3 and 3.5%.”
Eckhold says the Reserve Bank will have to move relatively quickly to reach that point or risk having to go even further, perhaps even as high as 4%.
All of this has repercussions for our money.
How much will mortgage rates go up
Mortgage rates are influenced by the OCR, but this isn’t the only factor.
Generally, when the OCR lifts, we’ll see quite a rapid response from floating and short-term rates.
Fixed rates are, however, slightly different.
These are usually priced in advance and are influenced by the wholesale rates (the rates banks pay to access money). These wholesale rates are often informed by where interest rates are likely to go in the coming year.
Further to this, Eckhold says the market has already priced-in some of these lifts.
“If you move forward until around April next year, it looks like they’ve got the OCR at around 3% priced in,” says Eckhold.
If, however, the pressure grows and it looks like the Reserve Bank will go further, then we could see some further hikes in fixed rates on the horizon.
What does this mean for mortgage holders?
The easing in home loan rates has definitely had an impact on homeowners.
This week, ASB chief executive Vittoria Shortt told The Post that 90% of the bank’s customers are now on home loan rates lower than 6%, while 45% are on rates under 5%.
In her comments Shorrt told The Post that 6% is really the mark they watch out for. While banks generally stress test their customers at higher levels (6.7% for ASB), this is the moment when they start to feel the squeeze of those higher rates.
In recent months, we’ve seen a decent uptick in mortgage rates as major banks have been pricing in the increase in wholesale rates.
You can still get a two-year fixed rate under 5%, but three-year rates are generally now higher than 5%.
If the OCR does start to hike at the end of the year and we do see messaging that indicates further hikes on the horizon, then those rates could tick ever-closer to that 6% mark.
But here’s the thing. Forecasting is fraught with peril and is notoriously difficult.
An analysis by Fisher Funds in 2021 showed the Reserve Bank’s own forecasts on where the OCR was likely to be in years to come rarely matched where the OCR actually landed.
The point here is that the prediction is difficult. Economists generally have a sense of where things are likely to be in six months, but it becomes exponentially more difficult beyond that.
With all the global uncertainty we’ve seen in recent years, these forecasts are becoming even more difficult. There are simply too many variables that can influence the course of action.
Should you break your mortgage?
Given the strong messaging that interest rates are going to rise in the next 12 months, the temptation might be there to break your current term and lock in a longer term while the rates are decent.
Michael Vincent, the director of mortgage operations at Lighthouse Financial, tells me when considering whether to break a mortgage and refix, the first thing to check is the break cost.
“In many cases, the cost of exiting a fixed rate can outweigh any savings from moving to a lower interest rate, so it needs to be clear the juice is worth the squeeze,” he says.
“Timing also matters. Rates need to be locked in quickly, as delays can see pricing shift and wipe out the benefit.”
In addition, borrowers also need to determine if a longer-term rate works with their broader financial plan.
“Refixing usually means committing for longer, so borrowers need to be confident they’re with the right bank. In some cases, refinancing and using a cashback to offset break costs can help, but only if the numbers stack up.”
The main driving force for breaking a mortgage would be the sense of FOMO (fear of missing out) that comes with the potential of missing out on a lower rate here and now, but Vincent says this is largely focusing on the wrong thing.
Rather than stressing about where mortgage rates may or may not go, Vincent says you should focus on what you can control: loan structure, flexibility and cash flow.
You can do far more for your financial well-being by ensuring you have a clear plan focused on paying off your mortgage as quickly as possible.
Consider your options
It’s also important to remember that your mortgage doesn’t have to be a case of ‘all or nothing’. You don’t have to lock your entire debt into a single fixed-rate.
Many banks now offer revolving credit or offset accounts that allow you to break off smaller bits and pay them off.
You can also put some of your loan on a floating rate, which allows you to pay off the principal faster without incurring additional charges.
Mark Wilkshire, the chief executive of the Co-operative Bank, says 12% of the dollar value of all mortgages ($47 billion dollars) is on a floating rate.
By breaking your mortgage into different parts, you can spread risk, while also shopping around to see what other banks are offering.
The Co-Operative Bank, for instance, is currently advertising a 4.99% floating rate, given they’ve identified this as a good target market for their organisation.
Every bank will have a slightly different marketing strategy and this will influence which customers they target.
“The larger banks are more focused on writing new business on fixed rates than on the needs of their existing customers, with some of their lending on floating rates,” says Wilkshire, in explaining why they’ve kept their floating rates lower than other banks.
The point here is that you have options, and there are things you can control. Stressing about where mortgage rates might or might not go won’t change the ultimate trajectory of the OCR. All it will achieve is commandeering a few hours of your sleep.
So what’s your mortgage strategy? Do you always try to secure the lowest rate or do you break your mortgage up into smaller parts? Let us know in the comments section below.