- Inflation is steady at 2.2%, within the Reserve Bank’s target band of 1-3%.

- A 50-basis-point cut to the Official Cash Rate (OCR) is widely expected next month.

- Mortgage rates are expected to fall, with further cuts anticipated throughout the year.

With inflation holding steady at 2.2% there are unlikely to be surprises next month, with another big cut to the OCR by the Reserve Bank widely expected.

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Stats NZ released figures on the consumer price index on Wednesday, with spokeswoman Nicola Growden saying it was the second consecutive quarter the annual inflation rate was within the RBNZ’s target band of 1-3%.

Some banks had already started cutting some of their interest rates and Kiwibank’s chief economist, Jarrod Kerr, told OneRoof the latest data did not change forecasts.

“The consensus was 2.1%. It came in at 2.2%. It’s neither here nor there really,” he said.

“When you scratch beneath the surface there’s enough disinflation coming through to suggest the domestic inflation problem is going to be solved this year, and inflation, we think, is going to be quite stable – actually, at around 2%. If anything, we are forecasting a slight dip below 2%.

“From the Reserve Bank’s perspective that’s ‘job done’. They can continue cutting interest rates back to more neutral levels.”

For mortgage holders and people having to refix their home loans, the outlook was of interest rates falling with a bit further to go, though probably not a lot.

“What we are waiting for is activity to pick up and once we get that activity picking up then the housing market more generally is going to look a lot better and a lot more attractive as rates are cut,” Kerr told OneRoof.

“We’re expecting a couple more to come through that will feed through to activity eventually and by the end of the year I think Kiwis will be feeling a little bit happier about life.”

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Kerr said the Reserve Bank had been forthright about a coming 50 basis point OCR cut so that was pretty much a done deal. “We then think there’s another 25 basis points in April. The question then becomes, do they go below 3.5%?”

BNZ chief economist Mike Jones also expects a 50-basis-point cut next month, which would take the cash rate to 3.75%.

“Our forecasts thereafter are for a series of more regulation 25bps as the RBNZ feels its way on the nebulous ‘neutral’ cash rate,” Jones wrote in the bank’s latest market report.

“The pace and timing of additional cuts following the strong chance of a February 50-pointer has always been highly uncertain but is probably more so now given developments in US interest rate markets.

“A string of incoming US policy announcements, with trade policy front and centre, further clouds the picture.”

Homeowners are likely to benefit from further drops in mortgage rates over the coming months. Photo / Fiona Goodall

Kiwibank chief economist Jarod Kerr: "By the end of the year I think Kiwis will be feeling a little bit happier." Photo / Supplied

Jones said it was against that backdrop, “we noted with interest” how skewed the New Zealand mortgage book had become towards shorter-term loans: “The prior clamour for short-terms is becoming a stampede.”

Mortgage-holders would continue to benefit if further OCR reductions were in line with forecasts. “These imply, at face-value, six-month and one-year mortgage rates falling below 5% by around mid-year.”

However, he cautioned that the year ahead still held plenty of risks.

In ASB’s weekly report, chief economist Nick Tuffley said non-tradable inflation was easing through the impact of the muted housing market and softening service sector.

“Over 2025 we expect inflation will hover reasonably close to 2%, though there will be changes in the mix of inflation. Tradable inflation will rebound a bit from very weak levels, and non-tradable inflation should continue to moderate,” he said.

“This inflation outlook will be comfortable enough for the RBNZ to continue cutting the OCR further.

“We continue to expect a 50bp cut in February to 3.75%. Beyond that the path is less clear and highly dependent on the run of events.

“We still expect an end point for the OCR of 3.25%, but future moves after February are likely to be of smaller 25bp cuts and could get spaced out as the RBNZ fine tunes what it judges is the most suitable level for interest rates.”

Satish Ranchhod, senior economist for Westpac, also expects the Reserve Bank to deliver another 50-basis-point cut next month.

“We expect inflation will remain well contained over the year ahead. However, the risks for inflation aren’t all to the downside, especially given the rocky global environment and downside risk for the New Zealand dollar,” he said.

“That will be an important area to watch over the coming year if inflation is to remain close to 2% on a sustained basis.”

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