In a move likely to capture the attention of central banks worldwide and offer much-needed financial relief to mortgage holders, the Reserve Bank of New Zealand (RBNZ) has followed the lead of other central banks, such as the Bank of Canada and the European Central Bank, by cutting its official cash rate by 25 basis points (0.25%) to 5.25%.

 In its statement, the RBNZ’s Monetary Policy Committee indicated that New Zealand’s annual consumer price inflation is returning within the Committee’s target band of 1 to 3 percent. Surveyed inflation expectations, firms’ pricing behaviour, headline inflation, and various core inflation measures are aligning with low and stable inflation.

 The RBNZ also signalled the possibility of further rate cuts, though the pace of easing will depend on the Committee’s confidence that pricing behaviour remains consistent with a low-inflation environment and that inflation expectations stay anchored around the 2 percent target.

 Reaction to the OCR drop was immediate, with Kiwibank and ASB cutting their home lending rates by 25 basis points. ANZ announced it was dropping some home loan rates by 10 basis points following the cut. This reduction followed a 15 basis point drop two weeks ago. 

These moves provided a welcome reprieve to many homeowners dealing with high mortgage interest rates and rising living costs, such as fuel prices and electricity charges, noted Ian Keightley, Head of Operations, Raine & Horne New Zealand. 

Looking ahead, it appears that homeowners can expect more cuts as the spring market picks up steam. ASB Bank chief economist Nick Tuffley said he expects the RBNZ will continue steadily cutting the cash rate by 25 basis points in consecutive meetings[i]. 

Mr Keightley welcomed the rate cuts, noting that it's encouraging to see banks responding positively and quickly. “When interest rates are cut, we typically see an uptick in house prices. Lower monthly mortgage repayments increase home equity, and the reality of lower rates often draws more buyers into the real estate market,” Ian explained.

“With the spring market just around the corner, the RBNZ’s decision is great news for vendors considering a sale. It’s likely to motivate buyers who have been holding back to take action before prices start to gain momentum,” Mr Keightley said.

Whether you want to sell or buy a property, don’t hesitate to contact your local Raine & Horne office.

[i] https://www.reuters.com/markets/new-zealand-central-bank-cuts-cash-rate-by-25-bps-525-2024-08-14/#:~:text=ASB%20Bank%20along%20with%20Kiwibank,the%20second%20quarter%20of%202025.