And just like that, we’re back with the first of our interest rates update for 2025.
Let’s start with a quick recap of where things were at heading into the break…
Our final Official Cash Rate (OCR) announcement of 2024 was on 27th November—when the Reserve Bank (RBNZ) cut the OCR by half a percent, taking us down to the current 4.25%.
Since then, the big news has been the release of New Zealand’s latest GDP stats, published just before Christmas. And they tell a pretty bleak story.
GDP fell 1% during the September 2024 quarter, with Statistics NZ also revising its result for the June 2024 quarter to indicate a much bigger drop (1.1%) than previously reported (0.2%).
It means the data now reflects what we’ve probably all felt for a while: we’re in a pretty nasty recession, and have been for some time.
What does that mean for the OCR, and mortgage rates?
We’re still a few weeks out from our first OCR announcement of the year, which is coming up on the 19th February.
There’s a strong expectation—particularly in light of those GDP results—that the RBNZ will deliver another 0.50% cut (as signalled back in November), bringing the OCR down to 3.75%.
All things being equal, that should be the catalyst for rates to finally drop below the 5% mark, likely by late February or early March.
Beyond that, we’re anticipating a series of pretty swift OCR reductions over the next few months, potentially getting us back to a ‘neutral’ OCR of around 3% as early as the middle of the year.
When rates do drop below 5%, that’s going to open up a whole lot of different options for borrowers
With the RBNZ targeting a ‘neutral’ OCR of around 3%, that means mortgage rates should fall back and settle somewhere between 4.5% and 5%. So, once we start seeing rates out there below 5%, that’s a pretty good deal.
The (almost universal) advice to borrowers in recent months has been to fix short-term, enabling them to benefit from lower rates as soon as possible.
But as we creep closer to the bottom of the cycle, that’s going to open up other options—whether it’s fixing short- or slightly longer-term, or splitting your mortgage—and borrowers need to be thinking about what works best for them and their situation.
In this environment, it’s often worth chatting to a mortgage adviser for personalised recommendations on the right strategy for you.
Check in again next week for our latest update on New Zealand interest rates.
