The Reserve Bank had a welcome surprise up its sleeve for us on 20 August.
Not the 0.25% Official Cash Rate (OCR) reduction, taking us down to 3.00%—that we saw coming from a mile away—but a very different outlook on the future of interest rates than what we've had to date.
The key takeaway? We're not at the bottom yet.
In response to ongoing weakness in the economy, the RBNZ has signaled it’s now eyeing further OCR cuts either later this year, or early next, with a view to getting us down to 2.50%.
That means we can expect one-year fixed mortgage rates to settle down around 4.5%, or perhaps even a little bit lower.
Going with a split-loan approach is still the recommendation to borrowers in this environment.
Having a foot in both camps—fixing a portion of your mortgage for one year, and the remainder for three—means you’ll benefit from further rate falls on the shorter term side of the equation, whilst also having interest rate certainty over the longer term.
We’re not expecting to see too much downward movement in medium and longer-term rates from here, so if you can get a three-year rate below 5%, that’s a great option.
Check in again next week for the latest news on New Zealand interest rates.
