RBNZ rate cut opens the door to cheaper home loans
The Monetary Policy Committee (MPC) of the Reserve Bank of New Zealand (RBNZ) appears to have won the war on inflation, after reducing the official cash rate from 5.50% to 5.25%.
This comes after the MPC hiked the official cash rate from an emergency setting of 0.25% in 2021, during the pandemic, to 5.50% in 2023, in an attempt to reduce demand in the economy and put downward pressure on inflation.
Inflation rose from 1.5% in the March 2021 quarter to peak at 7.3% in June 2022, but has since steadily declined, reaching 3.3% in the June 2024 quarter. That places it just outside the RBNZ's target band of 1-3%.
In a statement announcing its official cash rate decision, RBNZ Governor Adrian Orr said inflation was on target to return within the band.
“Surveyed inflation expectations, firms’ pricing behaviour, headline inflation and a variety of core inflation measures are moving consistent with low and stable inflation,” he said.
“Economic growth remains below trend and inflation is declining across advanced economies. Some central banks have begun reducing policy interest rates. Imported inflation into New Zealand has declined to be more consistent with pre-pandemic levels. Services inflation remains elevated but is also expected to continue to decline, both at home and abroad, in line with increased spare economic capacity.”
Governor Orr said New Zealand inflation was expected to remain near the target mid-point [i.e. about 2.5%] over the foreseeable future, potentially opening the door for future reductions in the official cash rate.
“The pace of further easing will depend on the Committee’s confidence that pricing behaviour remains consistent with a low inflation environment, and that inflation expectations are anchored around the 2% target,” he said.
Does this mean mortgage rates will fall?
Mortgage lenders are often influenced by RBNZ decisions, so there’s a good chance that a reduction in the official cash rate will lead to a general decline in home loan interest rates.
However, lenders are independent of the RBNZ, so while the general trend might be down, this is likely to be applied unevenly.
For example, some lenders might reduce their mortgage rates by 0.25 percentage points, while others might cut their rates by less or nothing at all. Also, a lender might reduce rates for some of its home loan products but not others.
As your mortgage adviser, I’m across all the latest interest rate movements. Please reach out if you’re wondering how the RBNZ decision affects your current home loan or your future borrowing plans.