The OCR has dropped to 4.75%, here’s what experts think

Wednesday, 9 October 2024

The Reserve Bank has cut the Official Cash Rate by 50 basis points, dropping it to 4.75%. The move has triggered immediate interest rate reductions across major banks, giving homeowners a break ahead of the holiday season. Zane Small reports.

The official cash rate dropping by 50 basis points to 4.75% shows the Reserve Bank knows they’re “behind the eight ball”, an economist says.

The Reserve Bank’s Monetary Policy Committee agreed that it was appropriate to cut the OCR by 50 basis points to “achieve and maintain low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate”.

Finance Minister Nicola Willis talks to media after OCR cut

For weeks, speculation on what the Reserve Bank would do, or should do, was circulating, with many experts calling for either a 25 or 50 basis point drop.

Infometrics chief economist Brad Olsen said it was not a surprise the bank had dropped the OCR by 50bp.

“We could understand why they’ve gone for 50 but I don’t think they’ve made a particularly strong case for why today had to be 50 rather than just a normal 25. And by pulling out that bigger gun they’re implying they recognise they’re behind the eight ball when it comes to interest rates being too high, relative to where the economy needs to be.”

When it came to the next OCR update in late November, Olsen said Infometrics saw a potential for the Reserve bank to cut the OCR by 75bp.

“Just because there is a three month break at the point and they might well want a bit more assurance over the summer if they think they need to cut more aggressively.”

The Reserve Bank has cut the OCR by 50 basis points.

ASB chief economist Nick Tuffley said the 50bp drop “had come to be widely expected” and the outlook appeared to be “very data dependent, with a further 50bp not a done deal”.

“The weakness of data through into early next year will influence how long the RBNZ keeps cutting in 50bp moves,” he said.

“We continue to expect another 50bp cut in November, then moves over 2025 will be even more conditional on the state of the economy.”

CoreLogic NZ chief property economist Kelvin Davidson said when it came to the housing market impact the key point was that mortgage interest rates were likely to continue to drop too.

“This could easily produce a short-term lift in confidence and a more active housing market as we hit the normal spring uplift anyway,” he said.

But although house prices may well stop falling in the near future, there was also plenty of reasons why they were unlikely to surge upwards either thanks to a tough labour market, flatter wages and stretched housing affordability.

Retail NZ chief executive Carolyn Young said the rate cut was an early Christmas present for the retail sector and was hopeful that it will turn around consumer confidence.

“We are delighted at the Reserve Bank’s decision to cut the OCR by 50 basis points to 4.75%.

“Coming at the beginning of Q4, this will be welcome news for retailers as they prepare to enter the period that is traditionally the busiest time of year for retail sales. Strong pre-Christmas sales are critical to retailers meeting their annual sales targets.”