The Reserve Bank of New Zealand’s (RBNZ) recent decision to reduce the Official Cash Rate (OCR) by 50 basis points has been welcomed by the Government as a sign the economy is heading in the right direction.
The RBNZ says inflation has declined and is close to the midpoint of its 1-3 per cent target band.
If economic conditions evolve as projected it expects to be able to low the OCR again early next year. But it’s not all smooth sailing.
“Economic activity in New Zealand remains subdued and output continues to be below its potential,” the RBNZ says.
“With excess productive capacity in the economy, inflation pressures have eased. Domestic price and wage setting behaviours are becoming consistent with inflation remaining near the target midpoint.
“The price of imports has fallen, also contributing to lower headline inflation.
“Economic growth is expected to recover during 2025, as lower interest rates encourage investment and other spending.
“Employment growth is expected to remain weak until mid-2025 and, for some, financial stress will take time to ease.”
Unfortunately for Kiwi workers and anyone looking for work, wage growth is slowing, which is consistent with inflation returning to the target midpoint, the RBNZ says.
“Employment levels and job vacancies have declined, reflecting subdued economic activity.
“Unemployment is expected to continue rising in the near term since the labour market typically takes longer to recover than output.”
The coalition Government was quick to pounce on the news of the OCR cut, with Finance Minister Nicola Willis saying it’ll mean more relief for Kiwis’ back pockets.
“That is good news for families and businesses – both directly and indirectly,” she says.
“To give one example, a family with a $500,000 mortgage on a 25-year term could expect to be about $180 a fortnight better off than it was a few months ago, if its rate dropped from 7 to 5.75 per cent.
“The drop means many everyday Kiwis can focus more on what matters most to them, and less on making the next mortgage repayment or whether their card will decline at the supermarket.”
“For businesses, lower rates mean lower borrowing costs and more money in the economy.”
