Mortgage rates may have bottomed already as RBNZ holds OCR

The RBNZ’s key reasons for keeping its official cash rate (OCR) on hold at 3.25%, as expected, included continued economic uncertainty and the risk of higher inflation.

However, the central bank said the case for lowering the OCR remains “broadly consistent” with the central projection outlined in its May monetary policy statement.

That projection had the OCR bottoming at 2.9% in the December quarter of this year and remaining at that level through to the March quarter of 2027, suggesting up to another couple of 25 basis points cuts.

RBNZ expects the annual consumers price index will rise towards the top of its 1% to 3% target band through the middle of this year but will return to about 2% by early 2026.

Xero economist Louise Southall says the 225 basis points cuts in the OCR since August last year should give households “a bit more breathing room after mortgage and loan repayments.”

However, a recent Xero survey of NZ customers found the majority, 82%, had not experienced any boost to sales from the OCR cuts but that a picture of cautious optimism was emerging.

Because the decision was widely expected and the central bank’s stance remained the same as at the end of May, there was little reaction in financial markets.

The New Zealand dollar initially jumped about 15 points to 60.16 US cents but had dropped back to previous levels within the first half hour.
Kerr says the minutes from the monetary policy committee show there was some debate amongst its members as to how much further RBNZ should cut the OCR.

“I think it’s because we’re getting close to the bottom,” Kerr says, adding that there’s only about a 50 basis point difference between different economists’ views.

While some economists expect the OCR to bottom at 3%, others are expecting 2.75% and others, including Kiwibank, are picking a 2.5% bottom.

“This time last year, we were arguing over 400 basis points,” he says.

“We believe that 75bp [more] is needed to kickstart things and to get rates firmly below neutral for an economy that we think needs it,” he says.

“Other are saying there’s inflation pressure so let’s just cool the jets.”

If the bottom turns out to be 3% or 3.25%, then mortgage rates have probably bottomed, but they could fall more i8f the bottom turns out to be 2.5%.