At 2.00pm on Wednesday 27th November 2024 we will have a the OCR Announcement and a Monetary Policy Statement from the Reserve Bank.
So what are we expecting?
If you had been asking before the US election results
The OCR Announcement
It’s going to be interesting to see what the Reserve Bank does this month and especially with the economists predicting a 0.50% cut and some even a 0.75% cut.
The issue that we have in New Zealand is we are just a small economy and we therefore rely on and bounce along with what happens around the World, and so the data from Australia and the US has an impact here. In particular our home loan interest rates are influenced by the US Bond market and with the positive economic data in the US we have seen an increase to bond yields. This is likely to put a stop to anything more than a 0.50% reduction unless something dramatic / unexpected happens in the next couple of weeks.
Our feeling is they will still reduce by 0.50% but that is probably built into most of the banks fixed rates already.
The Monetary Policy Statement
This will be the most interesting part of the announcement.
These statements always paint a picture of where the Reserve Bank see the economy in the months and years ahead, and so gives us an indication of what 2025 might look like.
Of course we all know that New Zealand has been doing things pretty tough and hopefully we have seen the worst and 2025 will be an improvement. There is an expectation that the OCR might drop to 3.00% – 3.50% in 2025 which is still quite a bit lower than what it is today (4.75%) and what we expect it might drop to in November. If it drops to 4.25% in November then that still gives the Reserve Bank room to make another smaller drop of maybe 0.25% in February to give a boost to confidence, and then they still have room to go again once or twice if needed.
What To Expect
If I was a betting man I would say 0.50% in November and then another 0.25% in February and that’s regardless what is happening within the economy. That means we might see home loan interest rates dip under 5.00% but probably not a lot lower than that.
But, and there is always a “but” – we could also see some overseas influences that might see home loan rates stay firm or even increase.
I would therefore now be saying get back to your home loan strategy and don’t try too hard to outsmart the market as you might not see any benefit.