Official Cash Rate cut: Reserve Bank says more cuts to come in February
The Reserve Bank has cut the Official Cash Rate by 50 basis points to 4.25%, as widely expected, and indicated another 50-basis-point cut is coming in February.
But RBNZ Governor Adrian Orr has warned that high international borrowing costs mean mortgage holders may need to temper their expectations for extremely low rates.
While he did not specifically allude to US politics, it is the case that concerns about US President-elect Donald Trump’s tariff policies and tax cut being inflationary have lifted the international cost of borrowing.
New Zealand’s major banks moved swiftly in lowering floating mortgage rates after the Reserve Bank cut the Official Cash Rate (OCR) to 4.25% today. But there was not much movement in fixed rates. ANZ made some cuts late Tuesday while Westpac trimmed its one-year mortgage rate by 20 basis points (bps).
In its November Monetary Policy Statement released today, the RBNZ set out a forward track that sees the Official Cash Rate dropping to about 3% by the middle of next year.
That was largely unchanged from the August MPS.
The RBNZ lifted its forecast GDP growth forecast for the March 2025 year to minus 0.1% from its previous forecast of minus 0.4%.
But further out, growth was forecast to be up just 2% in the 2026 year and 2.4% in 2027, down from previous forecasts of 2.7% and 3.2%, respectively.
Unemployment for the March 2025 year was forecast at 5.2%, down from its August forecast of 5.4%. That still represents another 11,000 newly unemployed people.
The central bank forecast unemployment at 4.7% and 4.4% in each of the 2026 and 2027 years, from previous forecasts of 5.1% and 4.6%, respectively.
“Economic growth is expected to recover from the December quarter, in part due to lower interest rates, but there is uncertainty around the exact timing and speed of the recovery,” the Monetary Policy Committee said.
The committee was confident that remaining inflation pressures will abate.
“Feedback from recent surveys and business visits suggest domestic price and wage setting behaviours are becoming consistent with inflation remaining sustainably at target,” it said.
Kiwibank chief economist Jarrod Kerr said the RBNZ had “delivered on expectations”.
“There was no discussion of a 75bps move and a 25bps move so the decision was pretty straightforward,” he said.
“Anything other than a 50bps would have been a shock, and hard to explain.”
But today’s move was just the tip of the iceberg, he said.
“The really interesting stuff was underneath. The RBNZ’s OCR track, which provides guidance on future policy moves, was lowered and pulled forward. It had to be ... because they’re cutting in 50s, not 25s.”
STORY CONTINUES AFTER LIVEBLOG
Cameron Smith
These live updates are now over.
How banks reacted to the OCR cut
Cameron Smith
Adrian Orr responds to Christopher Luxon's inflation claim
Cameron Smith
Asked about Prime Minister Christopher Luxon's claim today that Government fiscal policy had brought inflation down, Orr said "Success has thousands of parents, I'm very pleased to no longer be an orphan."
How New Zealand banks charge more for less
Cameron Smith
Mortgage holders need to temper expectations, says Adrian Orr
Cameron Smith
Mortgage holders did need to temper their expectations around the pass-through of the OCR given higher international funding costs average, Orr said.
He said he would like to see bank margins fall from 2.4% where they are currently, to the lower long term average.
“I really hope increased demand for mortgages means increased competition and increased pressure on bank margins," he said. "I hope we see margins decrease".
Adrian Orr live stream: ’50 basis points felt right’
Cameron Smith
Orr says there was no consideration of cutting the OCR by 75 or 25 basis points. "50 felt right and particularly with a forward track that leaves the door open for another 50 point cut”.
Adrian Orr live stream: Market talk of moves to a 25bps cut a ‘misnomer’
Cameron Smith
Asked about the RBNZ potentially slowing the pace of easing, Governor Adrian Orr said the November MPS showed a steeper chart than in the August chart. Market talk of moves to a 25 basis point cut were a "misnomer", he said.
The MPS projections were still consistent with a 50 basis point cut in February, dependent on economic conditions.
Reserve Bank shifts GDP growth forecast
Cameron Smith
In its projections, the Reserve Bank shifted its GDP growth forecast for the March 2025 year to minus 0.1% from its previous forecast of minus 0.4%.
Further out, growth was forecast to be up 2.0% in the 2026 year and 2.4% in 2027, down from a previous forecast of 2.7% and 3.2%, respectively.
Unemployment for the March 2025 year was forecast at 5.2%, down from its August forecast of 5.4%.
The bank forecast unemployment at 4.7% and 4.4% in each of the 2026 and 2027 years, from previous forecasts of 5.1% and 4.6%, respectively.
Reserve Bank Governor Adrian Orr to front media
Cameron Smith
Reserve Bank Governor Adrian Orr is due to hold a media conference at 3pm following the central bank’s decision to cut the Official Cash Rate by 50 basis points to 4.25% earlier this afternoon.
‘We need the cash rate below 4% ASAP’: Kiwibank chief economist
Cameron Smith
Kiwibank chief economist Jarrod Kerr said he had "tweaked" his view after today's announcement.
"More cuts are required. And we need the cash rate below 4% ASAP. We advocate another 50bp move in February… but we now expect a 25bp move," he said.
"And we’ve lifted our forecast terminal rate to 3%, no longer 2.5%. We've made these changes on the back of the RBNZ's tweaks. But we note that the RBNZ may be too hawkish, again (as they were in May)."
Cameron Smith
Reserve Bank leaves door wide open: ASB economist
Cameron Smith
ASB chief economist Nick Tuffley said the Reserve Bank had left the door wide open for its future moves.
But the OCR track for the March quarter had an average of 4.07% which implied a fairly high chance of a 50 basis point cut in February.
The OCR track was now forecast to end in 2027 at 3.06%, similar to the RBNZ's August forecast of 3%, Tuffley said.
"From here we expect the RBNZ will slow the pace of easing to 25bp moves in 2025, but the risk is a further 50bp cut.
"However, the ultimate pace will be dictated by events. It is also now a three-month gap until the RBNZ next meets, with a full cycle of quarterly domestic data and President Trump’s inauguration in between."
'Good news for families': Finance Minister
Cameron Smith
Finance Minister Nicola Willis said today’s cut would mean more relief for Kiwis’ backpockets.
“That is good news for families and businesses – both directly and indirectly,” she said.
“To give one example, a family with a $500,000 mortgage on a 25-year term could expect to be about $180 a fortnight better off than it was a few months ago, if its rate dropped from 7 to 5.75%.
“Of course, the impact will depend on the size of those mortgages and whether they are floating or fixed, as well as what their current rates are.”
WIllis said the drop meant Kiwi could focus on “what matters most to them, and less on making the next mortgage repayment or whether their card will decline at the supermarket”.
BNZ cuts variable home loan rate
Cameron Smith
BNZ is cutting its standard variable home loan rate, passing on the full OCR cut of 50-basis points.
This follows BNZ’s 50 basis point cut to its standard 6-month fixed home loan rate last week to 5.99%.
BNZ will also make changes to its Total Money, Rapid Repay and Mortgage One rates. BNZ’s Rapid Save rate will decrease by 45 basis points to 3.75% effective from 29 November 2024.
Monetary Policy Committee united in 50 basis point decision
Cameron Smith
The Monetary Policy Committee was united in its decision for a 50 basis point cut.
"With headline inflation close to the midpoint and measures of core inflation converging on the midpoint, the Committee has more confidence to continue removing monetary policy restraint," the RBNZ statement said.
"The Committee agreed that a 50 basis point cut is consistent with their mandate of maintaining low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates and the exchange rate. If economic conditions continue to evolve as projected, the Committee expects to be able to lower the OCR further early next year."
Kiwi dollar rallies on Official Cash Rate decision
Cameron Smith
The New Zealand dollar rallied by about 40 pips to US58.70c after the OCR announcement.
Some in the market had expected a 75 basis point cut.
“It’s not as dovish as the market had expected, so the Kiwi is up a bit,” Westpac market strategist Imre Speizer said.
Looking ahead, the forecast OCR track was lowered but not by as much as the market had expected. “Easing from here could be quite gradual,” he said.
What you need to know before refixing your mortgage
Cameron Smith
Co-operative Bank knocks 70 basis points off its floating home loan rate
Cameron Smith
Going a step further the Co-operative Bank has cut 70 basis points off its floating home loan rate cutting it to 6.95%. The bank said this was the lowest rate in the market.
Kiwibank, ASB cut home loan rates
Cameron Smith
Kiwibank has cut its variable home loan and business lending rates. It has cut 50 basis points off its variable and offset loan rates to 7.25% and will drop its revolving loan rate to 7.3%.
ASB's variable home loan rate has been cut by 50 basis points to 7.39% and its orbit rate to 7.49%.
ASB has also dropped its business and rural lending rates.
ASB’s Executive General Manager Business Banking Rebecca James said its service test rate for home loans would now drop to 7.6% from Monday.
Official Cash Rate cut by 50 basis points to 4.25%
Cameron Smith
The Reserve Bank has cut the Official Cash Rate by 50 basis points to 4.25%.
It’s the third rate cut since August, which has seen the OCR drop from 5.5%.
Nearly there ...
Cameron Smith
In October the Reserve Bank cut the Official Cash Rate by 50 basis points. Will we get the same today? Economists seem to think so.
A cut to the OCR today would be the third consecutive since August.
Why mortgage rates may not drop as fast as the OCR
Cameron Smith
ANZ cuts mortgage rates ahead of OCR
Cameron Smith
Yesterday afternoon ANZ cut both its mortgage and term deposit rates.
The largest of the cuts was to its six-month home loan rates, which dropped 26 basis points to 6.24% (special) and 6.84% (standard).
Its standard and special one-year fixed-term rates were cut by 20bps.
READ THE FULL STORY:
What is the OCR and how does it affect mortgage rates?
Cameron Smith
25, 50 or 75 points? What to expect from today’s OCR decision
Cameron Smith
Official Cash Rate call one hour away
Cameron Smith
Welcome to the Herald’s live coverage of the Reserve Bank's final Official Cash Rate decision for 2024.
The Reserve Bank will publish a full monetary policy statement at 2pm today, followed by a press conference from Governor Adrian Orr at 3pm.
The Herald will keep you updated throughout the afternoon.
STORY CONTINUES
Despite the pathway being lowered, the forecast endpoint for the OCR was lifted a little to 3.06% (from 2.98%).
“That’s bang on the 3.1% rate implied in wholesale rates,” Kerr said. “More cuts are required. And we need the cash rate below 4% Asap. We advocate another 50bps move in February… but we now expect a 25bps move. And we’ve lifted our forecast terminal rate to 3%, no longer 2.5%. We’ve made these changes on the back of the RBNZ’s tweaks. But we note that the RBNZ may be too hawkish, again (as they were in May).”
ANZ chief economist Sharon Zollner said she was also expecting a 25bps cut in February.
“A comment from the Governor at the press conference suggested that a 50bps cut in February is the baseline expectation,” she said.
“Our OCR forecast is unchanged: we continue to pencil in 25bps cuts in February, April and May, taking the OCR to 3.5%.”
As always, the speed and extent of easing would be highly data-dependent, she said.
“That’s particularly true given there is such a long gap to the next meeting. The odds of a 50bps cut in February have lifted, given the Governor’s comments, but the data between now and then will carry the day, and there are clear signs of a broad-based lift in activity – from a very weak starting point.”
ASB chief economist Nick Tuffley said the RBNZ had left the door wide open for its future moves. But the OCR track for the March quarter had an average of 4.07% which implied a fairly high chance of a 50bps cut in February.
“From here we expect the RBNZ will slow the pace of easing to 25bps moves in 2025, but the risk is a further 50bps cut.
“However, the ultimate pace will be dictated by events. It is also now a three-month gap until the RBNZ next meets, with a full cycle of quarterly domestic data and President Trump’s inauguration in between.”
In an unusual move, Prime Minister Christopher Luxon and Finance Minister Nicola Willis held a press conference ahead of the Reserve Bank’s regular media event.
Asked about Luxon’s comment that: “mortgage relief is on the way because our plan is supporting lower inflation”, Orr said: “Success has thousands of parents, I’m very pleased to no longer be an orphan”.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.