More interest rate relief: Reserve Bank cuts OCR to 4.25%

4 hours ago

Homeowners can expect a further lowering of mortgage rates after the Reserve Bank cut the official cash rate (OCR) to 4.25% — a fall of 50 basis points.

OCR - Figure 1
Photo 1 News

Cuts to the OCR are generally followed by retail banks lowering their mortgage rates and reducing the interest return on savings. Today's announcement will be the final one for 2024.

Several major banks immediately cut their loan rates in response to the decision.

The Reserve Bank's monetary policy committee said inflation was "now close to the midpoint" of the central bank's target range of 1% to 3%.

"Inflation expectations are also close to target and core inflation is converging to the midpoint. If economic conditions continue to evolve as projected, the committee expects to be able to lower the OCR further early next year," it wrote.

"Economic growth is expected to recover during 2025, as lower interest rates encourage investment and other spending. Employment growth is expected to remain weak until mid-2025 and, for some, financial stress will take time to ease.

Reserve Bank Governor Adrian Orr (composite image) (Source: 1News)

"Global economic growth is expected to remain subdued in the near term. Geopolitical conditions and policy uncertainty could contribute to increased economic and inflation volatility over the medium term."

The majority of economists had been predicting a cut of 50 basis points or 0.50% — although some had called for a bigger 0.75% drop as the economy continued to be sluggish, even though inflation had fallen into the Reserve Bank's target range.

OCR - Figure 2
Photo 1 News

Lower interest rates are seen as a way of boosting the housing market and driving more spending. Since a 0.25% cut in the OCR in August — the first in four years — and a 0.5% cut in October, banks have been steadily trimming their home loan rates.

Major banks' mortgage rates, as of this morning, included a 5.79% one-year fixed rate "special" from ANZ and 5.95% for the same term from BNZ.

Three-year rates were slightly lower at 5.59% at ANZ and 5.69% at BNZ.

For savers, ANZ was offering 4.75% on a 1-year term deposit on a minimum of $10,000, while BNZ was offering 4.95% for a 1-year term deposit on $2000 and above.

State of the economy

1News Business Correspondent Katie Bradford said despite economists predicting a big interest rate cut, it would take time for the impacts to be felt. (Source: Breakfast)

Some economists are now forecasting recovery in the New Zealand economy in 2025 after a turbulent couple of years.

Kiwibank's Jarrod Kerr said he is hearing from business owners that costs are easing and mortgage brokers are getting more inquiries from potential home buyers.

And ASB bank noted this week: "Business sentiment data from the ANZ business outlook survey (ANZBO) should continue to highlight positive expectations for economic activity, employment, profitability and investment over the next 12 months, albeit from a weak starting point."

However, Westpac's economic commentary this week warned: "With economic growth expected to remain soft for some time yet, businesses also expect the jobs market will continue to soften."

Economy headed in the 'right direction' — Finance Minister

Nicola Willis (file image). (Source: 1News)

Finance Minister Nicola Willis said the drop was "good news" for families and businesses.

"To give one example, a family with a $500,000 mortgage on a 25-year term could expect to be about $180 a fortnight better off than it was a few months ago if its rate dropped from 7% to 5.75%.

"Of course, the impact will depend on the size of those mortgages and whether they are floating or fixed, as well as what their current rates are.

“The drop means many everyday Kiwis can focus more on what matters most to them, and less on making the next mortgage repayment or whether their card will decline at the supermarket."

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She believes the OCR drops, along with her Government's economic policies, mean "large numbers" of families were better off than they were last year.

"We are headed in the right direction."

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