For the first time in four years, interest rates are officially on the way down again
On Wednesday, the Reserve Bank delivered a 0.25% cut to the Official Cash Rate—taking it from 5.5% to 5.25%—marking the start of a gradual easing of interest rates over the coming months.
The RBNZ had come under increasing pressure to make the call in recent weeks, in the face of mounting weak economic data (pointing to a negative outlook for GDP) coupled with clear signs that inflation is now under control and should be back within the target range of 1%-3% by October.
According to the RBNZ’s latest forecasts, we can expect to see another two OCR cuts by Christmas 2024—0.25% in October, and the same again in November—followed by a further series of reductions, totaling 1%, over the course of 2025.
What does that mean for mortgage rates?
We can expect to see fixed-term rates fall a little further following the RBNZ’s latest verdict, but not by much.
A number of the banks had already started to reduce their fixed-term rates in recent weeks (in light of the growing expectation that OCR cuts were on the horizon), which means the cut was already largely priced into rates out in market.
The recommendation for anyone looking to refix at the moment, or who’s settling on a new property in the coming weeks, would be to fix short-term—for six months—with the knowledge that when that loan matures, you’ll roll off onto a lower rate.
The best six-month rate we’re seeing out there right now is 6.85%, although that could come down over the coming weeks as the market starts to price in further OCR falls.
An alternative would be to roll over or settle on a floating rate, with a view to riding rates down over the next few months, before you fix.
While floating rates are significantly higher than fixed-term rates, it’s an option worth considering in the short-term if you want to be able to take advantage of further rate decreases as soon as they start to come through.
Check back in again next week for another update on what's happening with New Zealand interest rates.
