Further rate cuts are possible, but not guaranteed

The Reserve Bank of New Zealand (RBNZ) trimmed the official cash rate (OCR) from 3.50% to 3.25% last month. While this move was widely anticipated, the real focus was always on what might come next – and the signs suggest the pace of further cuts could be slower than some expected, according to Cotality Chief Economist Kelvin Davidson.

This reflects the fact that “inflation remains within the 1-3% target band, and that the economy is still patchy”. Furthermore, global uncertainty, particularly trade tensions, is weighing on the outlook. “The risks to both New Zealand’s economy and inflation from the global trade tensions are to the downside,” he said.

The RBNZ’s latest forecasts suggest further OCR reductions are possible, but not guaranteed. One Monetary Policy Committee member even voted to keep the OCR on hold at 3.50%. “It doesn’t seem to be a foregone conclusion that the OCR will continue to fall consistently,” Mr Davidson explained. “The published OCR track has a trough of around 2.80-2.90% late this year or early next, which implies perhaps two more rate cuts in this cycle, but not necessarily every meeting.”

For buyers and existing homeowners, the recent rate cut may not move the dial much in the short term. Some banks had already begun cutting mortgage rates ahead of the announcement, and further downward movements are still possible. However, Mr Davidson warned, “The largest rate falls may well be behind us.”

As for the property market, Mr Davidson forecast a “subdued upturn” this year. The RBNZ expects property prices to rise 3.5% in 2025 and 4.8% in 2026. But the recovery would be modest, he said, with the benefits of lower mortgage rates offset by a sluggish economy and the influence of debt-to-income restrictions.

Contact me if you’d like to discuss how the OCR outlook might affect your mortgage or property plans.