We’ve had a fresh batch of weak economic data out this week—this time from our manufacturing sector—providing further evidence (in case anyone was in doubt) that we’re still very much in a mild recession.
The numbers support the Reserve Bank’s recent decision to revise the Official Cash Rate (OCR) forecast. It’s now planning to get us down to 2.50% over the next few months—0.5% below what was previously expected.
Some have called for the RBNZ to take things even further, but 2.50% is probably about as low as can reasonably be expected. As interest rate cuts continue to flow through, it’s feeling more likely that we’ll be on the road to recovery by Christmas—albeit a slow and steady one.
At an OCR of 2.50%, short-term mortgage rates should settle somewhere around the 4.50% mark—perhaps a little lower depending on levels of bank competition.
The one-year rate is currently sitting at 4.75%, which means it’s still got about quarter of a percent to go.
For those longer-term rates, anything below 5% is attractive. We’ve already got three-year rates sitting between 4.90% 4.95%—if the four- and five year rates get down to that level, that would be a great option for borrowers.
For anyone refixing or settling on a new mortgage in the coming weeks, splitting your loan is still a good bet.
Fixing your loan across a mix of shorter and longer terms will put you in a position to benefit from further rate falls on the shorter-term portion, while also giving you interest rate certainty over the portion you’ve locked in for longer.
Check in again next week for the latest on New Zealand interest rate news.
