PHOTO: Economists expect further cuts before Christmas, with mortgage and business loan rates likely to fall further. FILE
⚡ Fast Facts
-
The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 25 basis points last week.
-
Two members of its Monetary Policy Committee pushed for a 50bps cut – a surprise to markets.
-
The two-year swap rate has already dropped to 2.9%, the lowest in years.
-
Economists expect further cuts before Christmas, with mortgage and business loan rates likely to fall further.
-
Markets are now pricing in a glide path towards an OCR of 2.5%.
📉 What Happened?
The Reserve Bank’s latest decision to trim the OCR by 25bps was no surprise. But the revelation that two committee members wanted an even deeper 50bps cut, combined with a downgraded interest rate outlook, shocked markets into action.
Kiwibank chief economist Jarrod Kerr said the reaction was immediate:
“The two-year swap rate dropped 16bps to 2.94 percent and opened Monday at 2.9 percent.”
That’s good news for anyone carrying debt – homeowners with mortgages, businesses with loans, and even first-home buyers eyeing the market.
🏡 What It Means for Borrowers
Kerr believes rates are now on a downward glide-path:
-
OCR could drop to 2.5% in the coming months.
-
Two-year swap rates may fall to 2.8%.
-
Banks are already passing on lower rates to borrowers.
👉 Translation: cheaper mortgages and loans are on the horizon.
Kerr added that if the Reserve Bank delivers two more cuts before Christmas, borrowers could see rates fall even further.
📊 At a Glance: Impact of OCR Cut
| 📌 Area | 🔻 Impact |
|---|---|
| Mortgage Holders | Lower interest repayments, easing cost-of-living pressure |
| Businesses | Cheaper lending, boosting investment confidence |
| Investors | Reduced returns on savings, possible push into housing & shares |
| Housing Market | Potential uptick in demand if credit becomes cheaper |
| NZ Dollar | Could weaken as interest rate differentials shrink |
🧐 Was It Planned?
Kerr suggested the Reserve Bank knew exactly how markets would react:
“The Reserve Bank knew what it was doing, it knew what the reaction would be and it got it.”
This signals a deliberate strategy to nudge the economy by encouraging borrowing and spending.
📉 More Economists Weigh In
ASB’s senior economist Mark Smith echoed the sentiment:
“NZ short-term swap yields are at three-year lows and could push lower as rate cut odds firm.”
Smith noted:
-
More 25bps cuts are possible but not fully priced in.
-
The upcoming Q2 GDP partial data will be crucial, especially with a forecasted 0.3% contraction.
-
Soft hiring data for July points to weakening momentum in the labour market.
🔍 The Bigger Picture
This shift comes against a backdrop of:
-
Stubbornly high living costs putting pressure on households.
-
Global uncertainty driving central banks towards looser monetary policy.
-
New Zealand’s economy flirting with recession, with weak growth and hiring.
Lower rates are designed to stimulate spending and investment, but they also risk fuelling the housing market again – a move that could reignite affordability concerns.
🏁 Conclusion
The Reserve Bank’s softer stance has set the stage for a new era of falling interest rates.
For borrowers, this is a welcome relief. For the wider economy, it’s a signal the RBNZ is prepared to act aggressively to steer New Zealand away from deeper slowdown.
👉 With further cuts on the table before Christmas, the question now is: how low can rates go, and will it be enough to jumpstart growth?