Super sized cut to the OCR to save the economy

Nerida Conisbee, Ray White Group Chief Economist

Great news today that the Reserve Bank of New Zealand decided on a super sized cut of the OCR today of 0.5 per cent. It is likely that this will be a continuation of trend for some time longer, with rates trending downwards over 2025. Depending on how the economy reacts to the cuts, these decreases could bring the OCR down from 4.75 per cent now to 3.75 per cent by the end of next year. This however is a fairly conservative outcome and we may be in for further decreases over 2025.

The rate cut comes not a moment too soon, or perhaps a little late. While rates were cut first in August, since then, a range of economic indicators continue to show weakness in the economy. New Zealand is now recording year on year economic decline with GDP falling 0.2 per cent in the 12 months to June 2024. Consumer confidence is particularly low and unemployment is rising. Net migration out of New Zealand remains very high. Business sentiment is also poor with company liquidations up 40 per cent compared to last year. Inflation data for September is yet to be released but is likely to show a decline to within the RBNZ’s target. Rates need to be cut further and quickly.

The cut will bring further relief to mortgage holders, who have had a particularly challenging time. Not only have mortgage repayments gone up dramatically, it has also been a difficult market to sell in with low levels of demand for property. The property market is also coming out of a challenging period and this rate cut will help.

House prices have fallen significantly across the country since rates began rising, we are now starting to see some regions rising again. Leading the charge is the Taranaki region which has risen by close to 20 per cent over the past 12 months. There are still some areas where the property market is very depressed. Prices in the Marlborough region are still recording an annual decline of nearly 6 per cent.