The Reserve Bank of New Zealand (RBNZ) is expected to reduce the Official Cash Rate (OCR) from 3.75% to 3.50% on Wednesday. This adjustment is likely to prompt trading banks to immediately lower floating lending and borrowing rates, offering relief to businesses, mortgage holders, and first-time home buyers.
“Interest rates have been coming down, which is really positive, but they take time to kick in. We’ve had a rise in business confidence, but we haven’t seen an increase in consumer confidence and demand,” Business Canterbury chief executive Leeann Watson said as she pointed out that a reduction was always appreciated, particularly during periods of economic recovery.
Watson emphasised that interest rates remain a major concern for Canterbury business leaders, alongside challenges such as inflation, productivity constraints, and growth limitations. “It’s crucial that we maintain a strong focus on preparing for future growth,” she added.
Meanwhile, Christchurch mortgage broker Tony Mounce noted that while lower interest rates benefit first-time buyers, the resulting decline in investment fund returns poses challenges for those dependent on KiwiSaver.
The major banks currently offer one- and two-year fixed mortgage rates ranging from 5% to 6%. If this week’s anticipated rate cut occurs, it would push rates down to 4.99%.
“If the number has a four, take it. We live in uncertain times, and you don’t know what Trump or the world is going to do next,” Mounce said.
Forecasters and Economists’ Take
Mounce anticipates a 25 basis-point OCR reduction this week, with a slight possibility of a 50 basis-point cut.
ANZ chief economist Sharon Zollner said, “A 25 bp cut this month looks baked in.”
Kiwibank agreed a 25 bp rate cut was “baked into the cake”.
Westpac chief economist Kelly Eckhold also predicted a 25 basis-point rate cut. However, he argued that “This OCR cut is likely the wrong thing to do.”
He expressed doubts about whether an additional rate cut is necessary or should be implemented immediately, suggesting a more cautious approach might be appropriate.
Eckhold noted that “an evaluation of the data flow in recent months shows both an improving economy and robust inflation.”
“Given the mandate is solely focused on inflation, it’s hard to make the case for cutting rates at every meeting from here,” he said.
“A cut at the May Monetary Policy Statement is likely still to be justified. But it’s less clear further cuts would be required from there.”