Today the Reserve Bank decided to hold the Official Cash Rate at 3.25%
When giving their financial outlook they did note that there are higher levels of uncertainty with both the New Zealand economy and around the World, and we think that has been quite obvious for some time now – for most of the year. They also acknowledged that we have a weak domestic economy, but higher export prices and lower interest rates are there to support a recovery in the New Zealand economy.
At this stage there is still some concern about holding inflation low, but these inflation pressures continue to ease (as projected) then the expectation is to lower the Official Cash Rate further.
In summary what they are saying is that they are allowing more time before dropping the rates again – maybe August?
The Good News!
There are a few bits of “good news” that you can take from what was said:
- Firstly, the OCR did not increase – not that it was expected to.
- Secondly, there is a good chance that we will see another drop on August 14th once they are happy that inflation is not increasing.
- Plus it sounds like they are still prepared to cut rates further even as the economy starts to recover.
It may not be time to pop the corks on the Champagne, but it’s good to see a more positive financial outlook.
Everything In Moderation
From all that we hear about economic recovery, inflation and interest rates it’s all about small changes – in moderation.
Some parts of the economy might be recovering faster than others, or some are recovering while others are not. Movements in domestic inflation seem pretty much under control, but we can still be impacted by what happens overseas. So while these areas are seeing moderate improvements the interest rate movement is expected to me moderate (minimal) too.
Thinking About Your Mortgage – so when you are thinking about what to do with refixing your home loans it’s probably not going to be worthwhile waiting for another drop in rates.
You are probably going to be better to revert to a long-term strategy and stick with that.
Most of the conversations are about what is happening between now and the end of 2025 and the expected economic recovery. Very little has been said about what would happen if the economy starts improving more quicky than expected – would that see the Reserve Bank hiking the interest rates back up?
Maybe that could happen in 2026 or 2027 and so if you want to manage your risks you may want to now start thinking about fixing some of your lending for 2-years or longer while at the same time you should make sure that you have the best home loan that really gives you the flexibility needed.
This financial outlook was brought to you by the Kiwi Edition.
Bookmark this website for more simplified news and views on all things finance related in New Zealand.
