The RBNZ Just Reversed Course. Here's Why That's Good News for Private Credit, Not Bad
After eighteen months of cutting, the Reserve Bank has lifted the OCR back to 2.50% as fuel-driven inflation blows past target. For term deposit holders that's an awkward moment. For private credit investors, it's less complicated than it looks.
Eighteen Months of Cuts, Then a Reversal
The Reserve Bank cut the OCR from a 5.50% peak in August 2024 down to 2.25% by November 2025, one of the sharpest easing cycles in the Bank's history. It held there through the first half of 2026. Then it moved the other way, lifting the OCR back to 2.50%.
The trigger was not domestic demand. It was fuel. Middle East supply disruption pushed petrol up 27.5% and diesel up 71% over the year, dragging annual CPI to 4.1% in the June quarter, comfortably above the Reserve Bank's 1 to 3% target and the highest reading in two years. Strip fuel out of the number and CPI sits at 2.9%, right where the Bank wants it. This is an energy shock sitting on top of an otherwise cooling economy, not a demand problem.
The Awkward Part for Savers
Term deposit rates rarely move as cleanly as the OCR. Banks were slow to pass on the full extent of the cuts through 2025, and they are unlikely to lift term deposit rates quickly now either; margins get protected on the way up in both directions. Anyone holding cash or a maturing term deposit is looking at a real return that is thin at best and negative at worst once tax and this inflation print are accounted for.
Why Private Credit Sits Differently in This Cycle
A portfolio of short-duration, secured lending facilities does not carry the same relationship to the OCR that a bank deposit or a long-dated bond does. Capital Connect's facilities run 6 to 12 months. Every one that matures and gets redeployed is priced against current conditions, not conditions from a year ago. When the cost of capital moves, whether up or down, a short-duration book adjusts within a couple of quarters rather than being locked in for years.
More fundamentally, returns from secured lending come from contractual interest agreed with each borrower at drawdown. That income is not generated by asset price appreciation, it is not sitting on a duration mismatch, and it has no direct link to fuel prices or the OCR path. It is a genuinely different return stream sitting next to a genuinely different risk, which is the entire point of holding it alongside a term deposit rather than thinking about it as a substitute.
What We're Watching
The Reserve Bank has signalled the door is still open in both directions depending on how quickly the fuel-driven inflation rolls off through the rest of 2026. For wholesale investors, the practical takeaway is less about predicting the next OCR move and more about the diversification case: a return stream tied to New Zealand SME and property lending fundamentals, not to where the Bank sets the cash rate next quarter, is worth more in a cycle like this one than in a calm one.
This article is general information only and does not constitute financial advice. Target returns are indicative only and not guaranteed. Investment in Capital Connect's funds is available to eligible wholesale investors only as defined under the Financial Markets Conduct Act 2013. Independent financial advice should be obtained before making any investment decision.
Key Figures
Metric 1
5.50%
Metric 2
2.25%
Metric 3
2.50%
This article is general information only and does not constitute financial advice. Independent legal, financial, and tax advice should be obtained before making any investment or financial decision. Past performance is not indicative of future results. Target returns are indicative only and not guaranteed.