The Reserve Bank has cut the official cash rate by 50 basis points to 3.75%.
Today’s decision has been three months in the making, but was widely-expected by economists. In November, Reserve Bank governor Adrian Orr said if economic conditions persisted, the Monetary Policy Committee would be looking to cut the OCR.
Today’s decision comes with inflation at 2.2% and unemployment for the December quarter at 5.1%.
For more on what the OCR cut means for you, go to TVNZ+
Today, the Reserve Bank said annual consumer price inflation remains near the midpoint of the Monetary Policy Committee’s 1% to 3% target band.
“The economic outlook remains consistent with inflation remaining in the band over the medium term, giving the Committee confidence to continue lowering the OCR.”
The Reserve Bank announced its widely tipped cut to the official cash rate this afternoon. (Source: 1News)
“Economic activity in New Zealand remains subdued. With spare productive capacity, domestic inflation pressures continue to ease.
“Price and wage setting behaviours are adapting to a low-inflation environment. The price of imports has fallen, also contributing to lower headline inflation.”
Banks react
All major banks have changed some of their home loan interest rates in reaction to today’s decision.
TSB pre-emptively cut its one-year fixed home loan rate to 5.35% from Tuesday. It also cut its six-month rate to 5.89%, its 18-month rate to 5.49% and its two-year rate to 5.29%.
Westpac cut its one-year special rate by 0.05% to 5.49%. Its 18-month rate also dropped by 0.05% to 5.29%.
Its four year rate was lowered 0.10% to 5.39% and five year rate 0.20% to 5.39%.
Its three year term was raised 0.40% to 5.39%. Its standard rates were also moved, as were variable rates and rates for savers.
KiwiBank cut its home variable and offset variable loan rates by 0.50% each, both to new rates of 6.75%. Its revolving loan was cut from 7.30% to 6.80%.
It also lowered some of its rates for savers.
Meanwhile, ASB cut its housing variable rate from 7.39% to 6.89%. Its orbit variable rate was cut from 7.49% to 6.99%. The back my build rate was cut from 4.94% to 4.44%.
It also lowered rates for business loans and savers.
BNZ lowered its variable rates by 50 basis points.
ANZ also lowered its rates for those with floating and flexible home loans.
Grant Knuckey, managing director for personal banking, said interest rates had fallen significantly in a relatively short period of time.
“At the moment around 12 per cent of ANZ home loan accounts are on floating rates – that’s a higher-than-usual number, and a reflection of the falling interest rate environment.”
It also lowered its serious saver, online call and business premium call rates.
All the changes come into effect over the coming weeks.
Economic growth prospects
The Reserve Bank added economic growth is “expected to recover” in 2025, and lower interest rates will “encourage spending”.
Elevated global economic uncertainty was expected to weigh on business investment decisions, however.
“Higher prices for some of our key commodities and a lower exchange rate will increase export revenues.”
Employment growth was also expected to pick up in the second half of the year as the domestic economy recovers, it said.
Economic growth globally was expected to remain “subdued” in the near term.
“Geopolitics, including uncertainty about trade barriers, is likely to weaken global growth. Global economic activity is also likely to remain fragile over the medium term given increasing geoeconomic fragmentation.”
Inflation to be ‘volatile’ in near term
Due to a lower exchange rate and higher petrol prices, the Reserve Bank said consumer price inflation in New Zealand is expected to be “volatile”.
“The net effect of future changes in trade policy on inflation in New Zealand is currently unclear. Nevertheless, the Committee is well placed to maintain price stability over the medium term.
“Having consumer price inflation close to the middle of its target band puts the Committee in the best position to respond to future inflationary shocks.”
If economic conditions continue to evolve as projected by the Reserve Bank, the Monetary Policy Committee “has scope” to lower the OCR further through 2025.
‘Evidence mounting of good times to come’ — Willis
Finance Minister Nicola Willis said today’s Reserve Bank announcement indicated the economy was growing and people could look forward to more jobs and opportunities.
“Today’s reduction in the Official Cash Rate is the fourth since August last year and confirms inflation is firmly back under control,” she said.
Willis noted the rate has fallen 1.75 points since August to 3.75% and further reductions would put more downward pressure on interest rates.
“The Government knows many families and businesses are doing it tough, but evidence is mounting that they can look forward to better times.
“That is good news for businesses as well as families. More money in people’s pockets means more money flowing through tills.”
Cuts ‘highlight economic blunders’ — Edmonds
Labour Party finance spokesperson Barbara Edmonds said the OCR cut was a symptom of “rising unemployment” and “an economy in recession”.
“Nicola Willis loves to take credit for the decisions of the Reserve Bank — which is an independent agency outside of her control — but, if she wants to own the rate cuts, then she needs to own what’s causing those cuts: Rising unemployment and the worst recession in 30 years, excluding Covid-19.”
Edmonds said she hoped the Reserve Bank’s decision provided some relief for Kiwis but said it was a “direct response” to the “economic downturn” caused by the current Government’s decisions.
“If the Government was serious about economic growth, it would take immediate action to stabilise the job market. That means investing in public services, infrastructure, and climate initiatives that create jobs, not axing funding for schools, hospitals, and public housing. It’s time for leadership that invests in jobs, skills, and the future, not cuts and excuses.”