RBNZ Cuts Official Cash Rate to 5.25% Amidst Slowing Economy and Housing Market Shifts

At the latest meeting, the RBNZ decided to drop the Official Cash Rate 0.25 percent to 5.25 percent. LJ Hooker Head of Network NZ Campbell Dunoon commented “This decision comes against a backdrop of falling inflation, softening employment markets and low levels of economic growth, marking the first rate cut since early 2020.

“The latest economic data tells a story of a slowing economy. Inflation continues to fall and is trending in the right direction, providing the RBNZ with enough comfort to cut rates ahead of the latest inflation data due to be released in October.

A key factor to its decision is how the employment market remains tight, with unemployment at 4.6 percent, where the Reserve Bank expects it to be.

“The housing market also paints a soft picture, as the demand/supply imbalance persists across most real estate markets. This imbalance has caused property values to fluctuate across various markets.

Overall, there are many properties on the market for sale, and today’s RBNZ decision will likely see more come onto the market, with listings around 30 percent higher than this time last year, according to realestate.co.nz.

In contrast, buyer demand continues to remain below average levels, however first home buyers continue to be active in this market. They have plenty of choice and stable property prices.

“Although property prices are down from their peaks, there has still been significant value growth across New Zealand, with good gains since pre-COVID levels. While across New Zealand, according to CoreLogic data, median values are up 18.6% since pre-COVID. When you home in on certain locations there has been significant performance in property values.

Tauranga is up 21.6%, Hamilton up 20.7%, Christchurch up 40.5%, New Plymouth up 41.9%, Whanganui up 31.9% and Queenstown up 30.1%, just to point out a few. These results in five years shows the value and gains in property investments.

“As the RBNZ continues to cut interest rates, more buyers will emerge in the market. While we know the economy is slow, the RBNZ has a tough decision to make as they balance the desire to leverage monetary policy to rope in inflation, in the process of making things tougher for New Zealand families.

Getting inflation inline is coming at a cost and everyone is looking for financial relief to help make ends meet.

“To their credit, banks have noticed the challenges their clients face and have started to alleviate pressure with reductions to fixed term rates. This shows banks are confident inflation is within that target rate of 1-3 percent.

However, signs are pointing to further cuts soon. If you are taking out a new mortgage soon, or looking to refinance, talk to your mortgage broker or financial advisor before committing to a long-term mortgage rate for the lower interest rate today.”