There’s not a lot to report from the world of mortgage rates this week—with the Reserve Bank’s ‘no change’ Official Cash Rate (OCR) decision on 9 July keeping things steady.
So instead of our usual update, let’s take a look at what’s to come over the months ahead.
At this stage, the RBNZ is still working towards an estimated ‘neutral’ OCR of 3%, and it’s said we can expect one more reduction sometime this year (timings TBC) to get us to the finish line.
But despite the fact that things are starting to look up in the economy—one of the RBNZ’s major reasons for hitting pause on rate cuts last week—the recovery has been sluggish. Outside of exports, agriculture, and the South Island, there’s not a lot of good news out there.
In light of that, there could be scope for the OCR to drop even lower than the RBNZ is currently predicting—potentially as low as 2.5%.
As with everything in the world of economics, though, there’s no guarantee.
Between conflict in the Middle East and US trade tariffs, the outlook for global inflation isn’t good. Off-shore longer-term interest rates having spiked in anticipation of inflation tracking upwards over the coming months.
So we’re in a bit of a catch-22 scenario, where what’s needed to help kickstart the economy again (i.e. further rate reductions) is at odds with what’s needed to combat offshore inflation concerns.
What should borrowers be thinking about in this environment?
Splitting your loan is still the recommendation to borrowers right now—fixing part for longer term, and the remainder shorter-term, so you get the benefit of both interest rate certainty and further rate cuts to come later in the year.
We’re seeing some lenders will to negotiate a three-year fixed rate of 4.95%, which (if you can get it) is a really attractive rate.
Check in again next week for the latest news on New Zealand interest rates.
