As expected, the Reserve Bank (RBNZ) delivered another 0.50% reduction to the Official Cash Rate (OCR) this week, taking it down to 4.25%.
What does that mean for interest rates?
In the wake of the decision, we’re now seeing advertised one-year fixed rates at around that 5.79% mark—with the expectation that negotiated one-year rates should drop below 5.50% by Christmas.
If you’ve been holding out on fixing for the last few months, waiting for further rate cuts to come through, now’s the time to lock in. Otherwise, you’re looking at another (almost) three-month wait before our next OCR announcement on 19 February 2025—which is a long time to be sitting on an expensive floating rate.
The recommendation for anyone looking to fix in the coming weeks (including anyone refixing or settling on a new property) would be to lock in for between six months and a year, with the knowledge that when that loan matures you’ll be rolling onto a much better rate.
At the other end of the fixed-rate spectrum, longer-term wholesale rates have been tracking upwards following Trump’s re-election as US president—reflecting the fact that a number of his policies (specifically his planned introduction of new trade tariffs) are expected to have an inflationary impact for the global economy.
So, although a number of our recent updates have talked about the possibility of seeing three-year fixed rates below 5.00% by Christmas, the chances of that now (unfortunately) feel pretty remote.
What’s the outlook on rates for next year?
The RBNZ’s latest forecast has us getting back to a “neutral” OCR—a level that neither stimulates or restricts the economy—in mid-2026.
But with the economy as weak as it is, and inflation seemingly dead and buried, there’s a good argument to suggest it’ll need to bring that date forward.
Our pick is that we’ll see a series of slow and steady, 0.25% reductions over the course of 2025, bringing us back to that “neutral” point—of between 2.75% and 3%—sometime towards the end of next year.
It’s important to note that we’re unlikely to see mortgage rates get back to the lows that we saw during the pandemic, of between 2% and 3%. Based on the RBNZ’s current thinking around a “neutral” OCR, borrowers should expect to see mortgage rates settle somewhere between 4.5% and 5%.
Check in again next week for our latest update on NZ interest rates.
