Homeowners can expect a further lowering of mortgage rates after the Reserve Bank (RBNZ) cut the official cash rate (OCR) to 4.25% — a fall of 50 basis points.
Cuts to the OCR are generally followed by retail banks lowering their mortgage rates and reducing the interest return on savings.
Today’s announcement will be the final one for 2024.
Several major banks immediately cut their loan rates in response to the decision.
The Reserve Bank’s monetary policy committee said inflation was “now close to the midpoint” of the central bank’s target range of 1% to 3%.
“Inflation expectations are also close to target and core inflation is converging to the midpoint,” the committee wrote.
“If economic conditions continue to evolve as projected, the committee expects to be able to lower the OCR further early next year.”
The majority of economists had been predicting a cut of 50 basis points or 0.50% — although some had called for a bigger 0.75% drop as the economy continued to be sluggish, even though inflation had fallen into the Reserve Bank’s target range.
Lower interest rates are seen as a way of boosting the housing market and driving more spending. Since a 0.25% cut in the OCR in August — the first in four years — and a 0.5% cut in October, banks have been steadily trimming their home loan rates.
Reserve Bank Governor Adrian Orr said there was a “strong consensus” on picking a 50 basis point cut instead of a 25 or 75 drop.
“The committee had a strong consensus around it,” he said, “very small, very limited discussions of a 25 or 75.”
Orr also said he was “confident” that “economic growth would be picking up”.
“The economics industry is much better at picking the direction rather than the pace. I want people to take a positive sense of this. We are confident the direction is north, that economic growth will be picking up,” he said.
“Where economists are often surprised, and as often reminded to me during our monetary policy committee meetings by members, is that we are generally surprised to the upside — once an economic turnaround comes.”
NZ headed in the ‘right direction’ — Finance Minister
Speaking this afternoon, Prime Minister Christopher Luxon welcomed the news while also partially taking credit for helping tame inflation.
The Prime Minister said: “Through disciplined spending and good careful financial and economic management, we’ve seen inflation fall, and as a consequence of that fall, interest rates are now also falling.”
Responding to the comments, Orr said: “Success has thousands of parents.
“I’m very pleased to no longer be an orphan.”
Finance Minister Nicola Willis said the drop was “good news” for families and businesses.
“To give one example, a family with a $500,000 mortgage on a 25-year term could expect to be about $180 a fortnight better off than it was a few months ago if its rate dropped from 7% to 5.75%.
“Of course, the impact will depend on the size of those mortgages and whether they are floating or fixed, as well as what their current rates are.
“The drop means many everyday Kiwis can focus more on what matters most to them, and less on making the next mortgage repayment or whether their card will decline at the supermarket.”
She believes the OCR drops, along with her Government’s economic policies, mean “large numbers” of families were better off than they were last year.
“We are headed in the right direction.”
Labour’s finance spokesperson, Barbara Edmonds, said in a post to X that the OCR reduction was “welcome”, but “the details show an economy still under pressure”.
She cited, “subdued growth, falling productivity, and declining net migration”.
“Economic resilience requires more than interest rate cuts. The Government needs a plan to unlock growth and help keep people in work.”
State of the economy
1News Business Correspondent Katie Bradford said despite economists predicting a big interest rate cut, it would take time for the impacts to be felt. (Source: Breakfast)
Some economists are now forecasting recovery in the New Zealand economy in 2025 after a turbulent couple of years.
Kiwibank’s Jarrod Kerr said he is hearing from business owners that costs are easing and mortgage brokers are getting more inquiries from potential home buyers.
And ASB bank noted this week: “Business sentiment data from the ANZ business outlook survey (ANZBO) should continue to highlight positive expectations for economic activity, employment, profitability and investment over the next 12 months, albeit from a weak starting point.”
However, Westpac’s economic commentary this week warned: “With economic growth expected to remain soft for some time yet, businesses also expect the jobs market will continue to soften.”