But, this time? … The market is interpreting the announcement as slightly dovish.

The Reserve Bank Governor said: “The Committee is confident that inflation will fall to the 2% midpoint over the next 12 months” 

Because of that, she expects that interest rates will “remain accommodative” for a while. 

That’s hardly sexy talk for most. But to people who watch markets for a living? That’s a wink, wink, nudge, nudge.

But why isn’t the Reserve Bank worried? Well, a big chunk of inflation is coming from administered inflation. That’s things like council rates and electricity.

Administered inflation is sitting at 8.7% (vs 3.1% for overall inflation). 

Raising the OCR won’t change any of that. Councils don’t dial down rates because the OCR goes up. They just set their budgets and send you the bill.

So, the Reserve Bank is watching what it can control.

And we can see the market interpreting this as dovish based on what happened overnight.

How did the market react?

Immediately after the announcement, wholesale rates dipped. (Think of these as what it costs banks to borrow and lend money to you and me for our mortgages.)

• The 1-year swap rate fell from 2.67% to 2.61%
• The 5-year dropped about 0.09%

Yes, tiny moves. And yes, they could be reversed in a week.

But the direction matters. Last time swap rates rose because the RBNZ sounded aggressive.

This time? They went the other way.

Here’s what it means for your mortgage now and in the next 2 years

Today – today and tomorrow – not much will change.

The floating rates are tied to the OCR. And the OCR didn’t budge.

The fixed rates are tied to the swaps. And those went down a bit (but don’t expect a cheaper interest rate). 

6-12 months – The markets think we’ll get 1-2 OCR increases by this time next year. 

Just remember that mortgage rates tend to move before the OCR does.

So, as we get closer to the next expected increase, fixed rates will start creeping up.

2 years – Over the next two years, the OCR is expected to drift back to around 3%.

If that happens, 1-year mortgage rates will likely settle around 5%.

“But I think inflation is going to be higher!”

I was scrolling through the Stuff.co.nz comments (dangerous hobby, I know).

One commenter, Tony_49, declared the Reserve Bank has “no clue whatsoever” and inflation will definitely still be above 5% next year.

And that reminded me of a graph that caught my eye. It was buried deep in the Reserve Bank’s docs. And it shows how much inflation the average Joe on the street expects … and professional forecasters.

In one year: 

• Professional forecasters (and business leaders) think inflation will be 2.6%
• Households think inflation will be 5.2%

It’s a trend we’ve seen over the last 9 years. 

The people setting prices think inflation is heading back toward the target.

The people paying those prices think it’s not.

So can we trust that inflation will just sort itself out? Well… it depends on whether you side with the economists. Or Tony_49.