Doubt remains over how tariffs will impact inflation and wider economy

These are uncertain times for New Zealand, with no one quite sure what impact the global trade war will have on interest rates and property prices, according to CoreLogic Chief Property Economist Kelvin Davidson.

The Monetary Policy Committee (MPC) of the Reserve Bank of New Zealand reduced the official cash rate (OCR) from 3.75% to 3.50% in April, which was widely expected given that inflation remains well within the target band and that the economy is still subdued. But the MPC's statement, which discussed tariffs and their possible effects, confirmed that it's too early to say what will come next.

“In a nutshell, uncertainty remains high, but the central view right now is that inflation effects are not clear-cut; a weaker New Zealand dollar could raise imported inflation, but a diversion of goods away from the US and towards New Zealand by large global exporters could work in the opposite direction,” Mr Davidson said.

“Then in regard to New Zealand’s economic growth itself, the general tone of the commentary is that it’s likely to be slower than in a world without tariffs. As such, the MPC noted they have scope to lower the OCR further as appropriate and as the effects of tariffs become clearer. In other words, New Zealand’s interest rate environment still has a ‘downward bias’ and it’ll be interesting to see what happens to mortgage rates in the coming weeks.”

The Monetary Policy Committee will make its next official cash rate decision on May 28, and will no doubt consider upcoming data on inflation (released April 17) and employment (May 7).

In the meantime, borrowers, buyers and investors are facing a period of uncertainty, according to Mr Davidson.

“February’s Reserve Bank lending data shows that borrowers continue to hedge their bets, with floating debt still popular (41% of loans) but fixed terms of longer than 12 months also coming back into focus. At 20% of activity in February, fixes of greater than 12 months were the most popular they have been since July last year,” he said.

“For now, tariff-uncertainty aside, our expectation is a subdued upturn for the property market in 2025, with sales volumes and house prices rising slowly. For individual borrowers, it will mean finding a balance between securing the best/lowest mortgage rate but also weighing up the certainty that a longer-term fixed loan can offer.”

Uncertainty is normal

Many of your clients are likely to be wondering what to do next, given how uncertain things are right now.

One point to remember is that uncertainty is normal: there are global crises almost every year, which is why, when someone makes a major economic decision, they should assume that difficult moments will lie ahead, and plan accordingly.

If your clients are looking for a cool head to talk to about their property and mortgage decisions, please refer them to me. I’ll be happy to explain their options to them.