CoreLogic NZ and Kiwibank react
In a calculated response to ongoing global uncertainties and domestic economic conditions, the Reserve Bank’s monetary policy committee has lowered the official cash rate by 0.25%, setting it at 3.5%.
This move, expected by market observers, comes as part of the RBNZ’s broader strategy to navigate through a complex global economic landscape influenced by trade tensions and subdued inflation.
Impact of global tariffs on New Zealand’s economy
The interim monetary policy review, while not providing new economic forecasts, offered crucial insights into the potential impacts of global tariffs on the New Zealand economy.
Kelvin Davidson (pictured left), chief property economist at CoreLogic NZ, elaborated on the nuanced economic impacts.
“In a nutshell, uncertainty remains high, but the central view right now is that inflation effects are not clear-cut; a weaker [NZ dollar] could raise imported inflation, but a diversion of goods away from the US and towards NZ by large global exporters could work in the opposite direction,” Davidson said.
Monetary policy flexibility amidst economic uncertainty
Looking forward, MPC has indicated a readiness to adjust the OCR further if necessary, as the full effects of international tariffs become more apparent.
Davidson commented on the central bank’s adaptable approach, noting that MPC has the potential to reduce the OCR further if needed, as the impact of tariffs on the economy becomes more defined.
“In other words, NZ’s interest rate environment still has a ‘downward bias,’ and it’ll be interesting to see what happens to mortgage rates in the coming weeks,” he said.
Assessing the impact on property markets, mortgage trends
Amid the broader economic discussions, the property market and mortgage borrowers are also navigating through a climate of “uncertainty.”
According to data from February’s Reserve Bank lending statistics, borrowers continued to show a preference for flexibility, with 41% of loans consisting of floating debt.
However, there’s a noticeable shift towards more stability, as fixed-term loans longer than 12 months are gaining traction.
These fixed terms accounted for 20% of lending activity in February, marking the highest popularity for such terms since July of the previous year.
Looking ahead, despite the uncertainties surrounding tariffs, the outlook for the property market in 2025 remains cautiously optimistic. Expectations lean toward a subdued upturn, with both sales volumes and house prices projected to rise gradually, CoreLogic reported.
Kiwibank advocates deeper rate cuts amid global risks
Jarrod Kerr (pictured right), chief economist at Kiwibank, provided a critical perspective on the broader economic risks and the need for a proactive policy response.
Kerr emphasised the increasing global risks, noting, “Like us, the RBNZ is rightly more concerned about the growing downside risks to global growth stemming from the tariff tit-for-tat.”
He also advocated for additional rate cuts, projecting a more stimulatory policy stance.
“We now call for a further 100bps of rate cuts to 2.5% by the end of the year,” Kerr said.
The next OCR decision, scheduled for May 28, will be further informed by upcoming economic data releases, including Q1's CPI data on April 17 and labour market figures on May 7.
