Following the release of our latest inflation numbers last week, we’ve seen a whole lot of speculation in the media around the future of interest rates.
The unanimous prediction among bank economists right now is that we’ll see rate cuts start to come through in November. As far as they’re concerned, that’s pretty much in the bag.
But, with two Official Cash Rate (OCR) announcements between now and then, there’s a growing expectation that relief could come even sooner
Now, there are two key things driving that expectation.
The first is something we’ve talked about previously, and that’s all the really weak economic data that’s coming through at the moment—none of which paints a very positive picture for GDP.
The second is that latest inflation data. According to the official stats, annual inflation is currently running at 3.3%, which is just outside the Reserve Bank’s target range of 1% to 3%.
Bear in mind though, that the bulk of that is down to one big number (1.8%) which dates all the way back to the September 2023 quarter. Once that drops out of the equation, which will happen sometime in October, we should be well back within the RBNZ’s target range.
Even though it will be a few months before that’s reflected in the official data, the RBNZ should be factoring that in going into its next two OCR announcements in August and October.
So, there’s a good argument to suggest that the RBNZ’s next OCR announcement—on 14th August—could bring the start of significant rate cuts
And—worst-case scenario—if there is no change to the OCR on 14th August, we’ll at least have a clearer idea of where the RBNZ’s thinking is at, and when rate cuts are likely to start coming through.
Anyone looking to refix right now, or who’s settling on a new property, has a couple of different options.
The first is to hold off for as long as possible, and potentially (even though we’ve cautioned against this in the past) rolling onto or settling on a floating mortgage rate to see you through until after 14th August.
Floating rates are currently up around 8%, which is expensive, so it’s not a long-term solution. But with the possibility of rate falls just around the corner, it does mean you’ll be able to take advantage of lower rates as soon as they start to come through.
If you are keen to fix, the recommendation would be to lock in for six months, in anticipation that when you do roll off, you’ll roll off onto a better rate. The best six-month rate out there at the moment is 6.95%.
Check back in again next week for the latest update on what's happening with New Zealand interest rates.
