What Could Interest Rates Look Like in 2026?

Interest rates feel high today because they rose very quickly after being extremely low for a long time. For years, borrowing was cheap and easy. After COVID, prices started rising fast. Every day costs like groceries, fuel, rent, and wages have all increased. This is inflation. Central banks, including the US Federal Reserve and the Reserve Bank of New Zealand, lifted interest rates to slow spending and calm inflation. It wasn’t about headlines or politics. It was about keeping prices from getting out of control and protecting trust in the system.

Today, inflation has eased, but it hasn’t fully gone away. Central banks are now in a watch-and-wait mode. They don’t want to cut rates too quickly and risk inflation returning. At the same time, economies are slowly healing. Households are still under pressure, but conditions are becoming more stable. Growth is weak, but it’s improving.

Looking ahead to 2026, the most likely outcome is not big cuts or big hikes, but stability. In this main scenario, interest rates settle into a fairly steady range. As inflation stays under control and economic activity slowly improves, central banks are likely to keep short-term rates broadly steady, with a risk of small increases rather than large decreases. This reflects a world where the emergency phase is over, but caution remains.

In this environment, borrowing costs don’t swing wildly. Mortgage rates and other longer-term rates may drift slightly higher as confidence returns and investors expect stronger growth. This can feel counterintuitive, but improving economies often lead to slightly higher long-term rates because investors expect more borrowing, more spending, and a bit more inflation over time. Stability, not sharp relief, is the key theme.

Another possible outcome is that rates remain flat for longer than expected. This could happen if economic growth improves only slowly or if global uncertainty continues. In that case, central banks would likely hold rates steady and wait for clearer signals before making any moves. This would still represent a much calmer environment than the sharp rate changes seen in recent years.

There is always a chance that rates rise more than expected. That would likely require stronger than expected growth or a return of inflation pressures, possibly driven by higher energy costs, global conflicts, or supply issues. Central banks would respond by nudging rates higher to keep inflation contained. These would likely be modest moves, not dramatic shocks.

It’s also important to understand that central banks mainly control short-term interest rates. Longer-term rates, like fixed mortgage rates, are shaped by global investors. These investors look at things like government debt, long-term growth prospects, and inflation risks. With ageing populations, slower productivity growth, and high government borrowing, long-term rates are unlikely to fall sharply. As conditions improve, they may even edge up.

For households in 2026, the key message is to expect steadier conditions rather than falling rates coming to the rescue. Planning around stable rates, with the possibility of small increases, is more realistic than betting on big drops. This means keeping some financial buffer and avoiding decisions that only work if rates fall.

For borrowers, investors, and advisers, this is a shift in mindset. The era of constantly falling rates is likely behind us for now. The focus should move toward resilience and flexibility rather than timing the market. Stable rates in a gradually improving economy are not a bad outcome, but they do require realistic expectations.

The bigger picture is that interest rates are returning to a more normal level. Not painfully high, not unusually low, but steady. Thinking in terms of stability rather than dramatic change helps people make better decisions and plan with greater confidence as 2026 approaches.