A dovish call by the Reserve Bank to cut the official cash rate by 50 basis points has been welcomed as a “relief”.
The central bank said it made its decision based on the belief that inflation is now within the 1-3% target range, and heading towards the 2% midpoint.
Watch on TVNZ+: What does the OCR drop mean for your back pocket? 1News Business Correspondent Katie Bradford and Q+A’s Jack Tame explain.
The OCR is now 4.75%, a drop of 50 basis points from August. It is the first time it’s been under 5% since March last year. (Source: 1News)
Big banks have quickly cut many of their rates in response to the call.
In making its decision, the Reserve Bank’s monetary policy committee said there remained some risks for monetary policy over the short term, with uncertainty overseas over the conflict in the Middle East and fiscal policy in the US and China.
The committee noted that there were still some risks that further adjustments to the OCR might be faster or slower than currently expected.
Reserve Bank probably want to ‘act fairly quickly’
CoreLogic chief property economist Kelvin Davidson said the OCR was “now clearly on a steady downward path” in the short to medium-term future.
“There’s a sense in the Reserve Bank’s commentary that they feel a need to act fairly quickly to get monetary policy back towards a more neutral setting — or even stimulatory — rather than the restrictive territory it’s been in for quite some time now,” he said.
“Overall, the OCR is now clearly on a steady downward path.
“In terms of the housing market impacts, the key point is that mortgage interest rates are likely to continue to drop too. This could easily produce a short-term lift in confidence and a more active housing market as we hit the normal Spring uplift anyway.
“However, although house prices may well stop falling in the near future, there are also plenty of reasons why they are unlikely to surge upwards either.”
Job losses and flatter wages would contribute to a less active housing market, he added.
Retailers ‘delighted’ by OCR news
Retail NZ chief executive Carolyn Young said businesses would be “delighted” at the decision to take a 50 basis point cut, coming at the beginning of the fourth quarter.
“This will be welcome news for retailers as they prepare to enter the period that is traditionally the busiest time of year for retail sales. Strong pre-Christmas sales are critical to retailers meeting their annual sales targets,” she said.
Young added she was hopeful the rate cut would help “turn around consumer confidence”.
Meanwhile, co-founder of social lender Money Sweetspot Meurig Chapman said they were glad the Reserve Bank hadn’t been “too conservative”.
“People have been doing it tough with the higher costs of living and mortgage rates. It’s great to see that the Reserve Bank wasn’t too conservative today, and has made a change that ultimately means New Zealanders can enjoy some more money in our pockets again.”
He suggested Kiwis should continue to keep purse strings tight.
“Coming into summertime, there’s no better time really to have some extra cash. However, it’s crucial that we don’t get carried away or make any silly decisions that come back to bite us post-Christmas,” Chapman said.
“With any surplus money, it’s still important to put some away for a rainy day, so that we’re living within our means, and also avoiding being caught out by the unpredictability of life.”
Finance Minister: ‘Brighter days coming’
In a media release, Finance Minister Nicola Willis said the cut was “welcome news for families” with “brighter days coming”.
“Lower interest rates will provide much-needed relief for households and businesses, allowing families to keep more of their hard-earned money and increasing the opportunities for businesses to invest and innovate,” she said.
“New Zealanders have been doing it tough over the last few years with the economy in recession, high interest rates and sharply rising prices.
“That is changing as inflation falls towards the target level, interest rates come down and businesses have the confidence to invest and hire again.”