The Official Cash Rate has dropped 50 basis points to 4.75% – its lowest point in more than a year and a half.
In its announcement today, the Reserve Bank of New Zealand said it was able to make the sizeable cut thanks to inflation heading in the right direction and a subdued economy.
Banks have already been aggressively cutting mortgage rates, with ANZ yesterday dropping its one-year rate below 6%, but the latest OCR decision is likely to pull down the cost of borrowing.
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The 50 basis point cut was in line with expectations, with most bank economists and market experts making the argument for a more dramatic intervention by the Reserve Bank.
Ray White Group chief economist Nerida Conisbee welcomed the news and said it signalled a rate of 3.75% by the end of next year.
“Depending on how the economy reacts to the cuts, these decreases could bring the OCR down from 4.75% now to 3.75% by the end of next year. This is a fairly conservative outcome and we may be in for further decreases over 2025.”
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She said the rate had come “perhaps a little late”.
“While rates were cut first in August, since then, a range of economic indicators continue to show weakness in the economy. New Zealand is now recording year-on-year economic decline with GDP falling 0.2% in the 12 months to June 2024.
“Consumer confidence is particularly low and unemployment is rising. Net migration out of New Zealand remains very high. Business sentiment is also poor with company liquidations up 40% compared to last year. Inflation data for Q3 is yet to be released but is likely to show a decline to within the RBNZ’s target. Rates need to be cut further and quickly.”
She said the cut would bring further relief to mortgage-holders. “Not only have mortgage repayments gone up dramatically, it has also been a difficult market to sell in with low levels of demand for property. The property market is also coming out of a challenging period and this rate cut will help.”
CoreLogic NZ chief economist Kelvin Davidson said while there had been 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”.
Ray White chief economist Nerida Conisbee: "Rates need to be cut further and quickly." Photo / Supplied
He said mortgage rates would likely fall further, giving the housing market a confidence boost.
“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. For a start, housing affordability remains stretched, and elevated listings are certainly putting finance-approved buyers in a strong position when it comes to price negotiations.
“But perhaps the most important restraint right now is the labour market. Job losses themselves will tend to limit house sales and prices. But there’s also the knock-on effect on sentiment even for those people who keep their jobs but don’t feel as secure in their role as they did before. In addition, flatter wages will also tend to subdue the housing market.”
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