Things have been pretty quiet in the world of interest rates over the last few weeks, and it’s likely to stay that way until our next Official Cash Rate (OCR) announcement on 20 August.
The expectation at this stage is that the Reserve Bank (RBNZ) will deliver another 0.25% cut—the result we really should have got last time—taking the final step to get us back to its estimated ‘neutral’ OCR of 3%.
Beyond that, we’ll also get the RBNZ’s updated interest rate forecast, outlining what it has in store for us over the next few months—and that’s going to be the key thing to watch.
If it’s still targeting a ‘neutral’ point of 3%, that means interest rates are largely at the bottom. If its thinking has changed, however, and it signals further OCR cuts are in the pipeline, that’s going to give mortgage rates (specifically shorter-term rates) room to come down a bit further.
Given all the weak economic news we’re still seeing out there, there’s been speculation that the OCR could get down as low as 2.5%. And if that’s the case, we could expect to see the one-year fixed rate drop to around 4.5%.
Longer-term rates—which are much more heavily influenced by overseas factors—are about as low as they’re going to get. With two and three year rates out there below 5% that’s really good value for money.
The recommendation to borrowers at the moment is still to hedge your bets i.e. splitting your mortgage across a mix of shorter and longer terms. Having part fixed for shorter means you’ll be in a position to take advantage of further rate cuts as they eventuate, while also have interest rate certainty over the longer term portion.
Check in again next week for the latest news on interest rates.
