- Housing market experts expect the Reserve Bank to cut the OCR by 25 basis points to 3.25% on Wednesday.
- US President Donald Trump’s tariffs create uncertainty, complicating the Reserve Bank’s decision-making.
- Some economists predict the OCR could drop to 2.75% this year, but inflation is a risk.
Housing market experts polled by OneRoof are almost universal in their belief that the Reserve Bank will reduce the Official Cash Rate by 25 basis points to 3.25% on Wednesday. They also expect further cuts in July and August.
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Complicating the picture, however, is the chaos unleashed on the global economy by US President Donald Trump.
ASB chief economist Nick Tuffley told OneRoof that it was hard to gauge the impact of the White House tariffs on New Zealand’s economy and inflation.
“That’s probably the biggest challenge; trying to overlay that onto what looks like an environment where the Reserve Bank can still comfortably cut to at least 3%,” he said.
US President Donald Trump is flip-flopping on tariffs, keeping the global economy on the back foot. Photo / Getty Images
ASB is forecasting a cut of 25 basis points on Wednesday and another similar-sized cut in July, taking the OCR to 3%. After that, it was hard to predict.
“Look, the volatility is there. I think we need to be looking through the noise and going, ‘[Trump’s] end game is that there’s going to be some degree of tariffs on most, if not all countries exporting to the US’, and we will need to live with that. There’s just going to be a rocky ride on the way.”
Mike Jones, chief economist for the BNZ, is predicting three more cuts to the OCR. “I think it’s going to be a case of simply not rocking the boat and going on the stated course that the Reserve Bank has been telling us.
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“A 25-basis point cut this week, and most likely an indication that the general direction for the OCR is still lower. But there will be lots and lots of reiteration [from the Reserve Bank] that uncertainty is elevated and we are in a volatile environment.”
Jones said that New Zealand was trying to get through week by week and month by month, just like other countries. He still expects the OCR to drop to 2.75% this year, but after that, it’s anyone’s guess.
Jones told OneRoof on Monday said that Wednesday’s expected cut could result in some adjustments to floating mortgage rates, but not fixed rates. “It shouldn’t change anyone’s views about where the property market is headed,” he said.
“There’s definitely a bit more confidence in the market – it’s just not having much effect on prices, given the extra inventory we’re seeing out there.”
However, ahead of tomorrow’s cut, BNZ dropped its fixed rates to a market-leading position: the 18-month rate was cut to 4.89%, the two-year rate dropped to 4.95%, and the three-year rate on offer from today was 5.09%.
BNZ chief economist Mike Jones: "Uncertainty is elevated and we are in a volatile environment.” Photo / Fiona Goodall
Andrew Chambers, head of Tella mortgages, told OneRoof on Friday, before BNZ’s move, that the banks had probably baked in Wednesday’s cut, so people should not expect to see much, if any, change to fixed mortgage rates. “We’re back in the low-rate environment, but I don’t think borrowers should expect rates in the threes or twos anytime soon.”
“I’d hope to see a few more borrowers locking in some certainty by taking longer-term fixed rates, even if they do mitigate the risk by breaking their loans into tranches.”
Infometrics CEO Brad Olsen said: “All else being equal, the Reserve Bank may go, ‘If Government is not going to do as much as it said it would, and if the general economy is going to be a bit tougher, maybe there’s more reason to cut interest rates down to 3%’.
“I don’t necessarily think the Reserve Bank will be in a huge rush to get there, though, because a lot of those expectations are based on challenging economic times from the tariffs, which keep changing.”
Housing market activity has increased but house prices are still flat. Photo / Fiona Goodall
Kelvin Davidson, chief economist at Cotality, formerly CoreLogic, said there could be fewer OCR cuts ahead, with the Reserve Bank mindful of the risk of rising inflation.
“It’s back into the target band, but the latest figures went up a bit, from 2.2 to 2.6. That’s still within the target band, but there is just a wee hint of concern out there, especially if the New Zealand dollar does stay a little bit weaker and we import a bit more inflation than we otherwise would have done.”
If the Reserve Bank felt inflation was on an upward swing, it could put the brakes on the OCR, meaning this week’s expected cut could be the last for a while.
Banks and customers had been factoring in the OCR ending up at about 3% for some time, and lending data showed people were starting to fix for 18 months or two years, inferring most were not expecting further big mortgage rate falls.
Fixing for longer could also reflect a mood change among mortgage-holders, who were tired of keeping such a keen eye on rates for so long and now wanted to get on with their lives.
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