Reserve Bank Cuts Official Cash Rate by 50 Basis Points

The Reserve Bank of New Zealand (RBNZ) today reduced the Official Cash Rate (OCR) by 50 basis points, bringing it down to 4.25 percent. Economists and market commentators suggest that this significant cut reflects the central bank’s strong commitment to stimulating the economy amidst ongoing challenges.

With the drop widely forecast, the main banks have signaled that they have largely already factored this pricing into their current rates. However, we anticipate further specials being announced over the coming weeks as the banks compete for market share.? Based on forecasts, we would expect a one-year special rate to land around 5.39 percent, although this could vary depending on how aggressive the banks choose to be with their pricing.

Interest Rates Holding Steady

Immediately following today's announcement, several of the main banks dropped their variable rates (floating rates) by up to 70 basis points, however no significant changes were made to fixed rates. Currently, six-month rates are sitting between 6.24 percent and 6.49 percent, while one-year rates are currently sitting at 5.79 percent (noting there was a 5.59 percent one-year special rate in the market post the last OCR announcement). ??

For slightly longer terms, we have not yet seen much movement in rates to date, with 18-month rates sitting between 5.59 percent and 5.79 percent, and two-year rates between 5.59 percent and 5.69 percent. Three-to-five-year rates have all been held steady and range between 5.55 percent and 6.19 percent.

For those currently sitting on a floating rate, or those with terms coming up for renewal, we recommend monitoring rates closely over the coming days and speaking with your adviser to understand how these changes will impact your options and financial situation.

Due to large number of borrowers across the country currently sitting on floating rates in anticipation of an OCR drop, bank processing times will be longer than usual due to the increased demand of people wanting to fix following the Reserve Bank’s announcement.

Strategic Considerations for Fixing Mortgage Terms

In the current environment of declining interest rates, fixing mortgage terms for shorter durations, such as six to twelve months, is likely to be a practical approach. Short-term fixed terms will allow borrowers the flexibility to reassess their options and potentially secure better rates as the market responds to the OCR changes, which are expected to continue trending downwards throughout 2025.

While banks are likely to adjust their offerings, the extent of reductions may not match the full OCR cut immediately, so staying informed is crucial.

Opportunities to Accelerate Mortgage Repayment

Lower interest rates provide a great opportunity for homeowners to accelerate their mortgage repayments. By maintaining existing repayment amounts, it is possible that borrowers can reduce their loan principal faster, shortening their mortgage term and saving significantly on interest costs over time. This approach enhances financial resilience and builds equity more quickly.

Leveraging a Competitive Lending Environment

The current competitive lending market is advantageous for borrowers, with many banks offering incentives such as cash contributions or special deals for new and existing clients. However, these offers often require careful negotiation and evaluation. We recommend speaking to your adviser who can help you navigate these opportunities and find a solution tailored to your needs.

Looking ahead

The RBNZ’s substantial OCR reduction signals a favourable environment for borrowers, but navigating the lending landscape requires strategic planning. Whether you’re considering refinancing, fixing a mortgage term, or accelerating repayments, our team at Threefold is here to help. ?

If you are interested in booking a free consultation with one of our team,?click here.

The content of this article should not be taken as financial advice, or a recommendation of any financial product. These insights are based on current economic commentary, market pricing for interest rates, and our personal opinion. Threefold is not liable or responsible for any information, omissions, or errors present.

?