The Reserve Bank (RBNZ) dropped the Official Cash Rate (OCR) by another 0.25% this week, bringing it down to 3.25%.
That’s pretty much as expected—tracking in line with the game plan laid out by former Governor Orr in February.
What was most interesting about this announcement is the fact that the RBNZ’s interest rate forecast has remained unchanged.
With the domestic economy still not in great shape, and Trump’s on-again/off-again tariffs causing all sorts of global volatility, some had speculated that the RBNZ might see fit to drop its ‘neutral’ estimate slightly to 2.75%.
For now, the RBNZ has said its still expecting the OCR to bottom out at around 3%—although that could change at its next Monetary Policy Statement in August.
Either way, the key message is we’re getting very close to the bottom of the interest rate cycle.
So, what does that mean for mortgage rates?
We’re unlikely to get a whole lot of movement in fixed rates off the back of the news.
Some banks have already dropped their one-year fixed rate to 4.89%—down from 4.99%—and that’s about as good as borrowers can expect to see for now.
Looking ahead, with at least one more OCR cut pretty much guaranteed, we should see the one-year rate should fall a bit further to around 4.79%.
And if the RBNZ does end up revising its ‘neutral’ forecast downwards, and the OCR dips to 2.75%, it could get as low as around 4.50%.
Advertised three-year fixed rates are still sitting up over 5.00%, although we are seeing a number of lenders willing to negotiate down to 4.99%, which is a really attractive rate.
What should borrowers be thinking about in this environment?
Splitting your mortgage across a mix of shorter and longer terms is still the recommendation to borrowers right now—and just means you’re hedging your bets.
Fixing part for longer—especially if you can get a rate below 5%—give you that all-important interest rate certainty. While having part fixed at a shorter-term means you’ll be able to take advantage of further rate drops as they come through.
Check back in again next week for the latest news on New Zealand interest rates.
