PHOTO: The RBNZ’s current forecast sees the OCR settling at 3%, but Kiwibank expects 2.5%, a cut that would drag one- and two-year fixed rates even lower. FILE
Falling mortgage rates could be on the cards as Kiwibank predicts the Reserve Bank of New Zealand (RBNZ) will be forced into larger-than-expected Official Cash Rate (OCR) cuts.
With around 40% of Kiwi mortgages set to roll over in the next six months — and another 10% on floating rates — Kiwibank says the timing could be perfect for borrowers looking to lock in lower interest rates.
Chief economist Jarrod Kerr believes that softening economic data both in New Zealand and overseas will force the RBNZ to slash rates further than either the central bank or markets currently anticipate.
“We expect rates to rally, hard,” Kerr said. “It’s a big, bold, beautiful bull steepener — led by the front end — as interest rates fall towards our 2.5% target.”
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📊 Kiwibank vs RBNZ: The Gap Widens
The RBNZ’s current forecast sees the OCR settling at 3%, but Kiwibank expects 2.5%, a cut that would drag one- and two-year fixed rates even lower.
Markets are increasingly aligning with this view as:
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Inflation remains tame
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Labour market conditions weaken
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Global tariffs dampen growth and demand
🌏 Offshore Trends Adding Pressure
Kiwibank’s outlook is also supported by international developments:
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Australia: Weaker inflation is fuelling speculation the Reserve Bank of Australia will cut rates.
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United States: Weaker-than-expected payroll data and sharp downward revisions have reopened the door for the Federal Reserve to cut again.
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Canada: The Bank of Canada held steady last week, but calls for cuts are growing louder.
“When other major economies become more comfortable with inflation after the US tariffs, it eases the nerves of some of our Monetary Policy Committee members,” Kerr noted.
💱 Kiwi Dollar Drops Below US60c
Adding to the mix, the NZ dollar has fallen below US60 cents, providing relief for exporters hit with 15% tariffs on goods heading to the US.
“The weaker currency makes Kiwi exports cheaper to foreigners,” Kerr said. “Exactly what the currency is supposed to do.”
📈 Inflation Expectations in Focus
This Thursday, the RBNZ will release its survey of inflation expectations. Kerr expects near-term inflation expectations to tick up, calling it “a move in the wrong direction,” but says headline inflation in the “high twos” could still be acceptable — as long as long-term expectations remain close to 2%.