As widely expected, the Reserve Bank’s Monetary Policy Committee cut the official cash rate (OCR) today by 0.25%, taking it to 3.25%. The decision reflected the fact that inflation remains within the 1-3% target band, and that the economy is still patchy.
But rather than the decision itself, most interest was always going to be around the forward-looking commentary and the RBNZ’s published forecasts. The overall conclusion from this has to be that further falls in the OCR lie ahead, with the commentary outlining how the risks to both NZ’s economy and inflation from the global trade tensions are to the downside. The recent Budget wasn’t thought to be a major shift in terms of the economic outlook.
To be fair, inflation could be a little higher than previous anticipated in the next quarter or two, before spare capacity in the economy brings it back down thereafter. Elsewhere, the unemployment rate is still thought to be at around its peak, but the updated RBNZ forecasts suggest that any meaningful falls may not come through for a while yet.
However, it doesn’t seem to be a foregone conclusion that the OCR will continue to fall consistently. Indeed, the Committee actually took a vote on whether to hold it at 3.5% or cut to 3.25%, and one member wanted to hold. Similarly, the published OCR track has a trough of around 2.8-2.9% (quarterly average) late this year or early next, which implies perhaps two more rate cuts in this cycle, but not necessarily every meeting.
For the housing market, nothing much really changes from today’s decision. Some banks were already trimming mortgage rates a little in advance of the decision, and although another renewed bout of competition is always possible, the largest rate falls may well be behind us.
For the record, the RBNZ’s prediction for our Cotality Home Value Index is an increase of 3.5% this calendar year before a rise of 4.8% in 2026.
We agree with that indication for a ‘subdued upturn’ in 2025. The lagged effects of the mortgage rate falls already seen will be an upwards influence, but the slow economic recovery and the lurking impact of debt to income restrictions are some of the factors likely to act in the other direction.
Meet Kelvin Davidson
Chief Economist
Kelvin joined CoreLogic in March 2018 as Senior Research Analyst, before moving into his current role of Chief Economist. He brings with him a wealth of experience, having spent 15 years working largely in private sector economic consultancies in both New Zealand and the UK.
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