Interest Rates: Let’s Talk Economist Predictions…
In our last post, we looked at how Swap Rates set the stage for your mortgage. But if banks and economists use the same data to predict where rates are heading, why do their forecasts change so often?
At different times in the past few months, we’ve heard varying predictions:
Rates will fall sooner than expected
Rates will stay higher for longer
The next move could be up!
Of course, as homeowners, these forecasts matter - especially when we’re trying to answer questions like:
Should I fix my mortgage now or wait?
Is locking in for three or five years risky?
Will rates be lower next year?
In this post, our mortgage broker explains what leading New Zealand economists are currently saying about interest rates, why their views often change, the difference between forecasting and actual mortgage pricing, and how homeowners can use economist views sensibly, without getting caught out.
WHAT NZ ECONOMISTS ARE CURRENTLY SAYING
Economists provide narratives about where the economy might head - inflation, growth, employment…
Rather than focusing on exact numbers or dates, it’s more useful to understand the direction and uncertainty in the current thinking.
Bank Economists
ANZ economists have signalled that while inflation has eased from its peak, it remains persistent enough that interest rate cuts are not imminent. They predict the next major move to be later rather than sooner.
BNZ has tended to take a slightly more hawkish stance, highlighting upside risks to inflation, and warning that interest rate hikes can’t be ruled out if price pressures remain stubborn.
ASB economists have pointed to signs that underlying inflation has stalled in its downward progress, reinforcing the idea that mortgage rates may stay higher for longer than many borrowers previous expected.
Kiwibank has shifted its outlook over time as the data has evolved, illustrating how forecasts change as new information becomes available.
While these views differ on timing, they all share a common theme: The path down is slower and more uncertain than hoped (sorry!)
Independent Economists
Independent commentators often focus less on precise rate calls and more on framing the cycle.
Tony Alexander has frequently emphasised that trying to ‘perfectly time’ interest rates is extremely difficult, and that borrowers should focus on choosing fixed terms that align with their personal risk tolerance, rather than chasing forecasts.
Cameron Bagrie has highlighted how quickly market sentiment can shift, noting that mortgage rate expectations are often revised well before central banks act.
WHY ECONOMIST FORECASTS CHANGE SO OFTEN (AND WHY THAT’S NORMAL)
One of the biggest misunderstandings about economists is a belief that changing forecasts means someone got it wrong somehow!
In reality, forecasts are conditional, and based on assumptions like inflation continuing to fall, wage growth moderating, global interest rates stabilising, energy prices behaving, etc. And when any of those assumptions change, the forecast must change too.
A single data release - one single inflation report or employment report - can shift market expectations, change wholesale funding costs, and force economists to revise their outlook.
A CRUCIAL DISTINCTION: FORECASTS VS MARKETS
Always remember to distinguish between opinions and actual prices. Economists produce forecasts (opinions), while financial markets produce prices (what banks actually pay for money).
Banks set your fixed mortgage rate based on Swap Rates, which are influenced by global conditions and market expectations, not just economist opinions. Because banks follow these ‘live’ market prices, you might see mortgage rates rise even when experts are predicting cuts. This is why the rate you are offered can often feel disconnected from the news cycle.
THE REAL RISK FOR HOMEOWNERS: FALSE CERTAINTY
The biggest danger isn’t listening to economists, it’s acting as if any forecast is certain.
Common traps include:
Delaying re-fixing your mortgage because “rates will be lower soon”
Fixing everything for long terms because “rates are about to rise”
Making large financial decisions based on one outlook
You don’t need to ignore forecasts entirely, but a more practical approach is to use them as risk indicators, not instructions.
Here’s how that looks in practice:
1. Use forecasts to understand ranges, not outcomes
Economist views can help you see what could go wrong or what could improve, and where uncertainty is highest.
2. Stress-test your budget
Instead of betting on one scenario, ask:
Can I afford my mortgage if rates stay where they are?
Can I afford my mortgage if rates rise slightly?
What if they fall more slowly than expected?
This is far more powerful than guessing timing. (P.S: A good mortgage broker can help you put numbers to all these scenarios)
3. Let your mortgage structure absorb uncertainty
You might choose to manage forecast risk by:
Splitting your loans across multiple fixed terms
Staggering your refix dates
Mixing certainty with flexibility
WHY THIS MATTERS RIGHT NOW
The current environment is particularly challenging because:
Inflation has fallen, but not decisively
Economic growth is soft, but not collapsing
Global interest rates remain influential
Markets are sensitive to small data surprises
This creates frequent forecast revisions — and emotional whiplash for borrowers who follow every update! Understanding this volatile dynamic helps you step back and make calmer decisions.
NEXT IN THIS SERIES…
In upcoming blog posts, our mortgage broker will explore whether to fix now or wait, which fixed terms make sense in different environments, and how to reduce re-fixing risk over time.
BROKER’S FINAL THOUGHTS
Understanding how forecasts work (and why they change) puts you in a much stronger position than trying to ‘outguess’ the next headline.
If you’re approaching a mortgage re-fix or weighing up your options, the most important question isn't "What will rates do?" but rather, "How much certainty do I need for my budget to work?"
Focusing on what you can control
- like your loan structure and your repayment goals -
is always a safer bet than relying on a prediction that could change by next Tuesday.
Ready to talk? Click here to call or email our mortgage broker Craig.
YOU MIGHT ALSO LIKE:
• What are Swap Rates?
• What the heck’s happening with interest rates?
• Paying a mortgage off faster (for realists)
Our blog is not intended to be taken as personal advice
and is for informational purposes only.
Before acting on this information, contact WealthHealth mortgage brokers
to ensure it is suitable for your circumstances.