News Next article
Reserve Bank cuts OCR to 3.5%
OCR updates and insights from Chief Economist Kelvin Davidson.
By Kelvin Davidson 9 April 2025
As widely expected, the Reserve Bank’s Monetary Policy Committee (MPC) cut the official cash rate today by 0.25%, taking it to 3.5%. The decision reflected the fact that inflation remains well within the target band and that the economy is still subdued.
Today’s release was an ‘interim’ Monetary Policy Review rather than a full Statement, which means we don’t get the updated economic forecasts and detailed analysis. But the MPC’s commentary today still took the time to discuss tariffs and possible effects.
In a nutshell, uncertainty remains high, but the central view right now is that inflation effects are not clear-cut; a weaker NZ$ could raise imported inflation, but a diversion of goods away from the US and towards NZ by large global exporters could work in the opposite direction.
Then, regarding NZ’s economic growth itself, the general tone of the commentary is that it’s likely to be slower than in a world without tariffs. As such, the MPC noted they have scope to lower the OCR further as appropriate and as the effects of tariffs become clearer.
In other words, NZ’s interest rate environment still has a ‘downward bias’ and it’ll be interesting to see what happens to mortgage rates in the coming weeks. The next OCR decision is 28 May, and prior to that we’ll have had a bit more information in the form of Q1’s CPI data (17 April) and labour market figures (7 May).
For the property market and mortgage borrowers, ‘uncertainty’ is also a buzzword. February’s Reserve Bank lending data shows that borrowers continue to hedge their bets, with floating debt still popular (41% of loans) but fixed terms of longer than 12 months also coming back into focus. At 20% of activity in February, fixes of greater than 12 months were the most popular they have been since July last year.
For now, tariff-uncertainty aside, our expectation is a subdued upturn for the property market in 2025, with sales volumes and house prices rising slowly. For individual borrowers, it will mean finding a balance between securing the best/lowest mortgage rate but also weighing up the certainty that a longer-term fixed loan can offer.
Previous OCR Updates
Catch up on previous OCR updates and commentary.
Reserve Bank cuts OCR to 3.75%
19 February 2025
Financial markets and economists were united in expecting the Reserve Bank to cut the official cash rate by 0.5% to 3.75% at today’s meeting, and this was duly delivered.
The barriers to the cut were non-existent, with inflation back inside the 1-3% target band and the economy still lacklustre. Anything other than a 0.5% cut would also have been surprising considering the clear signal given by the RBNZ at their last meeting in November.
Many of the forecasts attached to today’s Monetary Policy Statement weren’t too much different than last time either, including projections for a gradual recovery in GDP growth this year, the unemployment rate to peak shortly (if not already) and start to fall again, and for house prices to resume a modest upwards trend. Headline CPI inflation is also projected to hover around 2% for the foreseeable future.
But there was still some ‘surprise’ value in the forward track for the OCR itself, with the RBNZ now seeing a potential trough in the range of 3-3.25% being reached perhaps by the middle of this year rather than mid-2026 as previously thought. In other words, there still seems room for another 0.5% cut before a ‘final’ 0.25% fall thereafter. This seemed to reflect their view that the economy has more spare capacity than previously thought.
For the property market and mortgage borrowers, then, the key message is that interest rates seemingly have further to fall yet, although the drops to come could be a bit slower or smaller than those seen to date – especially since banks were already cutting in advance of today’s decision anyway.
It’s also going to be really interesting to see whether the recent stampede towards borrowers taking floating and short-term fixed rates go into reverse at some stage in 2025, with the focus potentially shifting back towards longer-term fixed rates again.
Looking ahead, it wouldn’t be a surprise to see limited growth in house prices in 2025, as mortgage rates drop. But keep in mind that lower rates will simply bring forward the timing for the debt-to-income restrictions to start biting; another reason to be cautious about the speed and duration of the next housing cycle. Indeed, the DTIs are effectively an ‘insurance policy’ for the Reserve Bank in this cycle. Previously, they might have been wary of cutting too soon, at the risk of driving house prices up. But now DTIs will act to curb that growth.
OCR cut again and more to come
27 November 2024
The financial markets and bank economists were unanimous in expecting the Reserve Bank to cut the official cash rate by 0.5% to 4.25% at today’s meeting, and this was duly delivered. The barriers to the cut were practically non-existent, with inflation back inside the 1-3% target band and the economy still lacklustre.
Most of the forecasts attached to today’s Monetary Policy Statement weren’t too different to last time, including projections for a recovery in GDP growth next year (and unemployment to peak) and for house prices to start rising modestly again.
Of most interest was probably the lowering of the forecast track for the official cash rate itself, which seems to imply another reasonably large cut early next year, perhaps even 0.5% again. Indeed, the RBNZ’s statement quoted: “If economic conditions continue to evolve as projected, the Committee expects to be able to lower the OCR further early next year.”
All in all, this is good news for those mortgage borrowers who have stayed floating or fixed short in anticipation of further interest rate drops. The clear guidance about further OCR cuts might also bring back some confidence to existing owner occupiers looking to relocate, alongside the already decent activity from first home buyers and early return of investors.
Indeed, history suggests that the falls in mortgage rates we’ve already seen could bring the recent downturn in property values to an end pretty soon. But that doesn’t necessarily mean a sharp upturn will start straightaway either. An ‘overhang’ of listings, rising unemployment, and the looming prospect of the debt to income ratio rules becoming more of a factor all suggest any housing upturn in 2025 could stay fairly muted.
Author
Chief Property Economist, CoreLogic - corelogic.co.nz
Kelvin joined CoreLogic in March 2018 as Senior Research Analyst, before moving into his current role of Chief Economist. He brings with him a wealth of experience, having spent 15 years working largely in private sector economic consultancies in both New Zealand and the UK.
In his role with CoreLogic Kelvin’s focus is on keeping up to date with what’s going on in the property market and continually finding different ways for viewing and interpreting it. Kelvin’s economics background means that he knows his way around a spreadsheet, but more importantly he always puts more emphasis on providing the key insights and telling a story, whether his audience be clients or the media.
