OCR cut: 'We are on the right path' - Luxon

Prime Minister Christopher Luxon and Finance Minister Nicola Willis have hailed today's Official Cash Rate cut, saying it's got New Zealand headed in the right direction.

The Reserve Bank cut the OCR by 50 basis points to 4.25 percent, the lowest it's been in a year. The cuts mean cheaper borrowing, including mortgage servicing for home-owners, and loans for businesses.

Inflation has slowed and is in the 1 to 3 percent target range, but economic growth is still low - and forecasts have continued to shrink.

Luxon said the OCR move was more good news for households and businesses.

"Many Kiwis are already seeing relief with mortgage rates falling, allowing their budgets to stretch a little bit further and giving families an extra dose of confidence heading into Christmas," he said.

"We can't fix all of New Zealand's economic challenges overnight, and we know that many families and many businesses are still doing it tough. The economy is coming out of a very deep and protracted recession that has put immense pressure on household finances and also businesses' bottom lines.

"With inflation now within the target range and another OCR cut welcomed today, the outlook is positive, and we are on the right path. I feel 12 months into this job, more positive about the future for New Zealand than at any point. We have a fantastic future ahead of us. "

Willis said it was good news but there was still a long road ahead.

"But the steps the government has taken to carefully prioritise government spending, invest in frontline services, reduce red tape and restore confidence in the economy, are having an impact. We are headed in the right direction."

The Reserve Bank's figures showed GDP - a blunt measure for growth - had fallen in the June quarter and was likely to have fallen again in the September quarter.

Forecasts were also downgraded since the last monetary policy statement in August, with the RBNZ saying economic growth was still weak, but expected to recover next year thanks to lower interest rates encouraging investment and spending.

Willis put the low growth rates down to two things: global factors, including slower growth in China and Europe; and the previous government's spending.

"A range of economists following Covid overestimated how enduring the productivity bounce back would be, and what you've seen is that the hangover from the big spending party during Covid has lasted longer and been deeper than had been forecast.

"Economists are now adjusting their expectations. However, let's be clear, next year, this economy is forecast to be growing and growing a lot faster than it has been in the past year. That is good news."

Photo: RNZ / Samuel Rillstone

She refused to say whether it would impact the government's expectations of reaching a surplus, saying she would reveal that at the half-year economic and fiscal update next month.

"When it comes to the overall growth position, there's that which we can control through our policy positions and we are. Things like fast track, reducing red tape, making sure that we are doing productivity-enhancing infrastructure. That all helps but when the revenue forecasts come down, that does make the path to surplus more challenging."

She also rejected the suggestion low growth had helped bring inflation down.

"I just reject that characterisation. What I would put to you is that this is a government that is on the side of growth, that is doing everything it possibly can to have policy settings that give businesses the confidence to invest and therefore grow."

She claimed that "if we had stuck to the plans of the previous administration, there would have been far more pressure on inflation, the books would be in far worse shape, and interest rates would be higher".

Unemployment is also expected to peak at 5.2 percent early next year, before a gradual recovery.

Labour leader Chris Hipkins welcomed the OCR cut, but said the coalition was continuing to hold back the economy.

He said rising rents, rates, power and insurance costs were the coalition's fault.

"I think the government slapping its back and saying what a great job its doing is really out of touch with a lot of Kiwis that are really struggling at the moment - particularly with the tens of thousands of New Zealanders who have lost their jobs since the election.

"Nicola Willis and the National government need to stop throttling the New Zealand economy."

Hipkins said it would be sensible for the government to delay its 2027-2028 target for getting the books back into surplus.

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