Reserve Bank of New Zealand Governor Adrian Orr. Photo / Mark Mitchell
The official cash rate has been cut by 50 basis points, bringing it down to 4.25%.
This marks the third consecutive cut to the OCR since August, and it is now at the lowest level since November 2022.
With inflation also dropping last month to 2.2%, stats show an improving economy – but low spending is sparking concerns that we aren’t out of the woods yet.
Reserve Bank of New Zealand Governor Adrian Orr said “50 felt right” and that it leaves the door open for another 50 point cut.
After the announcement, economists agreed the pace had quickened, but some warned that there was still a three-month window until the RBNZ’s next meeting.
Kiwibank chief economist Jarrod Kerr said more cuts are required.
“We advocate another 50bps move in February … but we now expect a 25bps move,” he said.
ASB chief economist Nick Tuffley expects the RBNZ will slow the pace of easing to 25bps moves in 2025.
“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 [United States President-elect Donald] Trump’s inauguration [in January] in between.”
Simplicity chief economist Shamubeel Equab told The Front Page he predicts the OCR will get down towards 3%.
Banks have already responded to the cut - with ANZ, ASB, BNZ, and Kiwibank all making amendments to lending rates.
But, Equab said that while it’s good news we will have to wait to see what the flow-on effect will be.
“It usually takes between six and 12 months before these interest rate cuts become broad-based, better news for the economy. That’s because the current level of interest rates is still quite painful.
“We’ll initially get just a bit of relief that people are not paying so much in mortgages. And then eventually when interest rates get low enough, we’re going to start borrowing and investing again. And that’s when the party begins,” he said.
Equab said that the country is in a late stage recession - “probably the deepest and longest recession since the global financial crisis” - which is seeing people spending less, which is flowing through to business confidence.
“A recession is not really going backwards. It’s all of us going, ‘I just don’t feel comfortable going out or making big decisions right now'.
“The consequence of that is the retailers or the businesses that rely on you spending your money with them, they’re going, ‘Oh, we have fewer customers, our costs are still high, our profits are down’. And that then goes into the cycle of businesses winding down, they have fewer employees [and] they don’t invest as much.”
He expects that Christmas and the coming months will still be tough for people, but the end of the recession is in sight.
“When you look forward to the next 12 months, you can see that inflation is not that much of a problem. You can see that mortgage rates are going to become cheaper and we are going to see people with better finances.
“And when people have better finances, they’re going to go out and do more. And that’s really what the economy is about. It’s more of us doing more things.”
Listen to the full episode to hear more from Equab on the state of the economy, from house prices and interest rate cuts, and if the Government’s plans are helping the economy.
The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am. The podcast is presented by Chelsea Daniels, an Auckland-based journalist with a background in world news and crime/justice reporting who joined NZME in 2016.
You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts.
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