Mortgage Rates Shift As OCR Drops to 3.75%
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- Reserve Bank lowers official cash rate by 50 basis points to 3.75%.
- Banks reduce floating mortgage rates, with mixed changes to fixed rates.
- Economic growth expected to recover in 2025 despite global uncertainty.
The Reserve Bank of New Zealand (RBNZ) has cut the official cash rate (OCR) by 50 basis points, bringing it down to 3.75%. This marks the third consecutive large cut, following previous signals from the central bank that it would continue easing rates if economic conditions remained weak.
The decision comes as inflation sits at 2.2% and the unemployment rate for the December quarter reaches 5.1%. The Reserve Bank’s Monetary Policy Committee noted that inflation remains within its target band of 1% to 3%, allowing room for further rate reductions. However, the bank also signalled a more cautious approach moving forward.
Some banks had already pre-emptively lowered mortgage rates ahead of the announcement. TSB reduced its one-year fixed home loan rate to 5.35%, along with cuts to its six-month, 18-month, and two-year rates. BNZ also made adjustments to its six-month rate. Other major banks moved quickly to lower floating mortgage rates following the Reserve Bank’s decision, although fixed rates largely remained unchanged.
Looking ahead, the Reserve Bank expects economic growth to recover in 2025. Lower interest rates are expected to encourage consumer spending, while export revenues should benefit from higher commodity prices and a weaker exchange rate. However, global economic uncertainty, trade tensions, and geopolitical risks could weigh on business investment and slow the pace of recovery.
The Reserve Bank also warned that inflation may remain volatile in the near term due to fluctuating petrol prices and the lower exchange rate. Despite these uncertainties, the central bank expressed confidence in maintaining price stability over the medium term.
Finance Minister Nicola Willis welcomed the rate cut, describing it as positive news for mortgage holders dealing with rising living costs.
Mandy Jordan, from Mortgage & Insurance Supply Southland, said
"Unsurprisingly, the OCR reduced again today, which is great for existing and new borrowers. We have the majority of economists predicting further reductions in interest rates, but equally important is that as banks lower rates, lending capacity often increases. Easier access to lending leads to more pre-approvals, stimulating the market and potentially pushing house prices up. If you're looking to buy property, pre-approval is key, and we’re here to assist."
While the Reserve Bank has indicated that further rate cuts are possible in 2025, the speed and scale of any reductions will depend on economic data and global conditions.