The market reacts
The Reserve Bank of New Zealand (RBNZ) slashed its official cash rate (OCR) Wednesday.
The Kiwi Country's already low benchmark rates dipped to a new low of 3.75%, down from 4.25%. But representatives from the central bank said the 50-basis point reduction was just the beginning.
"If the economy evolves as predicted, we believe that we'll be able to lower the official cash rate again over the coming months," Adrian Orr, governor of RBNZ, said in a televised address.
"This is good news," Orr said.
The rate reductions were largely expected by the market.
"The only thing that's changed is the OCR is falling quicker than the RBNZ had previously said," Kelvin Davidson, economist at CoreLogic NZ, told the New Zealand Adviser. "The OCR rates should be around 3% by July [2025]. Previously it was thought it wouldn't get there until 2026.
But, he added, "The projections for the future don't change."
The path forward
New Zealand's recovery story continues to evolve. At present, the Kiwi Country is amid a recession, navigating conflicting market forces.
In the RBNZ's statement, the central bank said global economic growth remains uncertain, particularly with heightened geopolitical risks and the potential for trade wars. However, the committee added that "higher prices for some of our key commodities and a lower exchange rate will increase export revenues."
Other downside risks include New Zealand's currently weak dollar.
"Consumer price inflation in New Zealand is expected to be volatile in the near term, due to a lower exchange rate and higher petrol prices," read the RBNZ statement. "The net effect of future changes in trade policy on inflation in New Zealand is currently unclear. Nevertheless, the committee is well placed to maintain price stability over the medium term."
During his address, Orr acknowledged the "tough" economic times that many Kiwis have endured in recent months, including rising unemployment levels.
But he went on to say that the worst is mostly behind the nation.
"Unemployment is broadly around its peak and will begin to decline quite rapidly over the second half of this year," Orr said. "Economic growth is picking up. Inflation remains within our target range, near the midpoint, around 2%."
CoreLogic's Davidson said the widely-expected rate cuts "reflect the oscillating forces" currently at play in New Zealand.
"There are multiple factors, both good and bad, in the market," he said. "The housing market implications [is that] it's still a buyers market. There's lots of choices out there. We're in an environment where people are bargaining pretty hard. It's tilted in favor of buyers. If you're a buyer, you're not going to overpay.
"But [the market] also assumes you can get the financing and some people are worried about their jobs," Davidson continued. "And generally, [sellers] aren't in a forced selling position. Whereas buyers aren't willing to meet their levels [in price]. So there's a bit of a standoff in the market at the moment. Transactions are rising, but they're below normal, compared with the past."
Lenders respond
Following the announcement, ANZ Bank New Zealand made a number of changes to its rates, including cutting its floating and flexible home loan rates by 50 basis points. The floating rate is now 6.89%, and the flexible loan rate is now 7%. In addition, the bank cut its two-year fixed rate special to 4.99%.
In a statement, ANZ New Zealand Managing Director for Personal Banking Grant Knuckey said the "rapidly changing environment can be a challenge to navigate." He added that the retail bank's updated rates give customers "a chance to get ahead on their finances, provides a bit more disposable income and hopefully means some much-needed spending with local businesses.”
Lorraine Mapu, managing director for business and Agri at ANZ New Zealand, added that "while it is encouraging to see the green shoots of recovery and some stronger commodity prices, many businesses are still doing it tough. Today’s move by the Reserve Bank will be welcome news to many of our business and farming customers.”
Westpac NZ followed suit by trimming rates on a number of its home loan products.
Chief Economist Kelly Eckhold wrote in a note Wednesday that the central bank will likely cut rates by 25 basis points at its April meeting, and then another 25 basis points at the May meeting, rounding out the OCR to 3.25%.
"We think the RBNZ will pause at this point as by then there will be tangible signs of a return to trend growth, while inflation will still be in the top half of the 1% to 3% target range," Eckhold wrote.
Kiwibank and ASB also made changes to its rates on Wednesday, while the Bank of New Zealand and TSB revealed reductions in their home loan rates a day before the central bank's announcement.
RBNZ meets again Wednesday, April 9 for a monetary policy review.
