Mike Hosking quizzes Adrian Orr as to why he moved to cut the official cash rate. Video / Newstalk ZB
The Official Cash Rate has been cut by 50 basis points to 4.75%, its second straight cut after years of rises.
Businesses, homeowners and real estate agents are cheering the cuts and its expected boost to the housing market, but there are concerns about rising unemployment.
Pundits are tipping further aggressive Reserve Bank cuts – including a possible 75-basis-point cut next month.
New Zealand businesses and homeowners are relieved and “buzzing” after banks slashed interest rates in response to yesterday’s “supersized” 50-basis-point Official Cash Rate (OCR) cut; however, the prospect of future job losses threatens to dampen the mood.
Pundits now expect the Reserve Bank to“go hard and fast” with further cuts – possibly even a 75-basis-point (bps) “triple whammy” next month – that would put significant mortgage relief in reach for struggling Kiwis and could breathe life into the housing market’s spring selling season.
Kiwibank earlier anticipated yesterday’s OCR cut to 4.75% – just the second reduction since March 2020 – by lowering its home and business interest rates ahead of the announcement, while all other major banks made immediate cuts afterwards.
Homeowners can now secure one-year fixed rates at 6.19%, and floating rates at 7.89% from nearly all major banks, while customers are reporting it is possible to negotiate one-year deals under 6%.
Cheering the announcement, one room full of real estate agents said they were “buzzing”. But Infometrics chief economist Brad Olsen is cautioning that unemployment is still set to rise above 5%.
That meant while lower rates could help more people buy homes or get better loan deals, many would be too worried about their jobs.
“Sure, interest rates might be a bit cheaper, but a mortgage is pretty impossible to pay if you haven’t got a job,” Olsen said.
Still, homeowners, businesses and politicians are hoping the fresh cuts arrive in time to inject energy into an economy choked by high borrowing costs.
Brad Olsen, chief executive and principal economist at Infometrics. Photo / Mark Mitchell
Reserve Bank of New Zealand (RBNZ) decision-makers acknowledged the economy was “subdued” as households save pennies rather than spend and businesses cut costs rather than invest.
That meant that – with inflation brought back under 3% after years of soaring cost-of-living expenses – the time was right for a significant cut, they said.
But they were tight-lipped about what steps they would take at next month’s RBNZ meeting.
Abhijit Surya, at Capital Economics, expected the central bank to get busy dishing out more cuts.
“We suspect the bank will hand down 50bps cuts at each of its next two meetings,” Surya said.
Olsen said yesterday’s cut showed the RBNZ was keen to move fast to ease pressure on the economy while seeming to give “a little bit of an implied admission that they have gone too slow so far”.
Because there was a bigger break between bank meetings over the Christmas period, that meant there was an “outside chance” it could go as far as making a 75bps cut next month to keep pace with changing economic conditions, he said.
Finance Minister Nicola Willis hailed the “fantastic news” of the cuts: “Double whammy, double happy,” she quipped.
With inflation under control, focus had to move to reducing borrowing costs for business and home buyers, she said.
“This is good news for the economy, it will help boost confidence.”
Act leader David Seymour welcomed the cuts but criticised the RBNZ’s twists and turns, saying it put Kiwi families on a nauseating “monetary roller coaster”.
“Today’s cut bookends a series of excesses. The too-easy money of Covid times spiked house prices and inflation. Then, interest rates shot up, house prices crashed back down,” Seymour said.
The Reserve Bank Monetary Policy Commitee, Adrian Orr (left) and (top row from left) Paul Conway, Bob Buckle, Karen Silk, (bottom row from left) Carl Hansen, Prasanna Gai and Christian Hawkesby. Composite Photo / NZME
Property pundits and economists expect the cuts to give confidence to a housing market where prices have been falling but not bring about overnight changes.
Owen Vaughan, editor of property website OneRoof, said: “Since the first OCR cut in August, we’ve seen buyer inquiries on OneRoof jump almost 20%. At the same time, agents have told us they have noticed more shoes at open homes and more buyers at auctions.”
Vaughan suspected house prices would likely rise as lower interest rates enabled more buyers to get loans and compete against each other to buy homes.
However, Kelvin Davidson, chief property economist with CoreLogic, said prices were unlikely to surge.
That was because prices and interest rates remained unaffordable for many and because buyers had plenty of choice given there were greater numbers of people keen to sell than buy.
Potential home buyers holding off because they were nervous about the stability of their jobs would also likely subdue any growth, he said.
Real estate agents and mortgage brokers, who have endured a lean few years, were now more upbeat.
Ray White chief executive Daniel Coulson said buyers acting now could likely buy at the bottom of the market while also enjoying cheaper interest rates.
Bruce Patten, mortgage broker and director at Loan Market, said the OCR cut was an early Christmas present and hoped it came in time for struggling businesses and homeowners.
With all banks having delivered multiple rounds of cuts since August, customers could likely expect even cheaper rates around the corner, with cuts possibly carrying on until April next year.
But Patten cautioned against holding out too long and missing the cheapest long-term deals.
Squirrel founder John Bolton echoed that, saying borrowers needed to be both cautious and realistic about their expectations of a “good” rate.
“You don’t want to get caught in the trap of using the insanely low rates we saw during Covid-19 as the benchmark for comparison,” Bolton said.
Retail businesses and farming groups also welcomed news of the OCR cut.
Retail NZ chief executive Carolyn Young said she hoped it gave customers confidence to spend as strong pre-Christmas sales were a key income for retailers.
ANZ managing director for business and agri, Lorraine Mapu, said most of its business and farming customers were on floating rates and with most major banks cutting their variable rates, the cheaper costs should flow through quickly.
