Tony Alexander unpacks how recent US economic trends could impact NZ’s mortgage rates in 2025
Tony Alexander (pictured above), an independent economist, began the new year by reflecting on his predictions from the end of 2024.
Alexander previously forecasted a mild economic recovery for 2025, including modest declines in interest rates and slight increases in real estate activity.
Two weeks into the new year, he saw no need to alter these predictions, maintaining his outlook despite evolving economic signals, OneRoof reported.
Interest rate outlook in New Zealand
Alexander has cautioned for months about the potential for rising business costs. Businesses are expected to rebuild margins as the economy gradually recovers, likely leading to increased pricing.
Recent data supports this view, with the ANZ’s Business Outlook Survey indicating a rise in the number of businesses planning to increase prices in the next 12 months – from 35% in June to 43% in December.
Similarly, the Quarterly Survey of Business Opinion from NZIER showed an increase in pricing intentions among businesses, OneRoof reported.
Implications for the Reserve Bank’s next move
These trends suggest that while there is room for the Reserve Bank (RBNZ) to cut the OCR in its next review on February 19, the reduction might be limited to as little as 0.25%, Alexander said.
This cautious approach is influenced by recent developments in the United States, where expectations for Federal Reserve monetary easing have significantly receded.
US economic strength affects global interest rates
Recent robust job market data in the US has led analysts to reconsider the likelihood of further rate cuts by the Federal Reserve, OneRoof reported.
Some believe the initial cut of 0.5% last year may have been premature. This reassessment has triggered increases in US wholesale interest rates, strengthening the US dollar and impacting the New Zealand dollar, which recently fell sharply against the US currency.
Advice for Kiwi borrowers
Given these global economic shifts, Alexander suggested that Kiwi borrowers remain flexible in their mortgage decisions. While short-term fixed rates might still appeal, he posited that fixing for a three-year term could become advantageous before mid-year.
However, with the incoming US administration’s policies yet to be fully revealed, he advised caution, noting the potential for significant shifts in growth, inflation, and interest rates, OneRoof reported.
For the full OneRoof report, click here.
