The Reserve Bank has cut the official cash rate by 0.5% to 4.25%, and with more likely to come, it is good news for some borrowers, says Core Logic Chief Economist Kelvin Davidson
The financial markets and bank economists were unanimous in expecting the Reserve Bank to cut the official cash rate by 0.5% to 4.25%, and this was duly delivered.
The barriers to the cut were practically non-existent, with inflation back inside the 1-3% target band and the economy still lacklustre.
Most of the forecasts attached to the latest Monetary Policy Statement weren’t too different to last time, including projections for a recovery in GDP growth next year (and unemployment to peak) and for house prices to start rising modestly again.
Of most interest was probably the lowering of the forecast track for the official cash rate itself, which seems to imply another reasonably large cut early next year, perhaps even 0.5% again. Indeed, the RBNZ’s statement quoted: “If economic conditions continue to evolve as projected, the Committee expects to be able to lower the OCR further early next year.”
All in all, this is good news for those mortgage borrowers who have stayed floating or fixed short in anticipation of further interest rate drops. The clear guidance about further OCR cuts might also bring back some confidence to existing owner occupiers looking to relocate, alongside the already decent activity from first home buyers and early return of investors.
Indeed, history suggests that the falls in mortgage rates we’ve already seen could bring the recent downturn in property values to an end pretty soon. But that doesn’t necessarily mean a sharp upturn will start straightaway either.
An ‘overhang’ of listings, rising unemployment, and the looming prospect of the debt to income ratio rules becoming more of a factor all suggest any housing upturn in 2025 could stay fairly muted.
