Drop to 3.5% in official cash rate ‘baked into the cake’

Monday, 7 April 2025

The Reserve Bank will issue the results of its review in a written statement at 2pm on Wednesday.

Economists are confident New Zealanders will see a cut in interest rates this afternoon, despite fears of an increase in domestic and global inflation.

New Zealand’s next official cash rate (OCR) announcement - a monetary policy review - is this afternoon.

There are fears Trump’s tariffs and retaliation from the European Union and Asian nations could knee-cap global economic growth.

Former Reserve Bank Governor Adrian Orr indicated in the bank’s last monetary policy statement in February that it expected interest rates would come down significantly faster than the bank had previously signalled.

Mortgage broker Tony Mounce said while lower rates were good news for first-time buyers, drops in investment funds were not for those relying on KiwiSaver.

He expected a 25-basis-point cut this week (quarter of a percentage point), with an outside chance it could be 50.

The major banks now have their one and two-year fixed mortgage rates at between 5% and 6%.

This week’s expected cut would bring rates down to 4.99%, which is “at the fringes” for New Zealand, Mounce said.

“If the number has a four, take it. We live in uncertain times and you don’t know what Trump, or the world, is going to do next.”

Christopher Luxon and Nicola Willis take questions in Wellington after the Reserve Bank cut interest rates by 50 basis points. They say it's a positive sign for homeowners, businesses, and economic growth.

ANZ said it looked like a 25-basis-point cut was “locked in” for Wednesday.

Kiwibank also described a 25bp rate cut as “baked into the cake”.

Reserve Bank chief economist Paul Conway told The Post in the wake of its last rate cut that although it expected inflation to rise from its last recorded level of 2.2% to peak at about 2.7% later this year, it would now be too late for the bank to head that off.

Given a rate cut was now fully expected, fixed mortgage rates and the New Zealand dollar would be unlikely to move much assuming a cut was confirmed, Kiwibank’s chief economist Jarrod Kerr, said.

Westpac chief economist Kelly Eckhold also expected a 25bp rate cut, but suggested the Reserve Bank would be better off leaving a cut until its next full monetary policy statement in May.

Westpac chief economist Kelly Eckhold says the RBNZ would be better off leaving a cut until its next full monetary policy statement in May.

“An evaluation of the data flow in recent months shows both an improving economy and robust inflation.”

Given the Reserve Bank’s mandate was now solely focused on inflation “it’s hard to make the case for cutting rates at every meeting from here”, he said.

But BNZ research head Stephen Toplis forecast both a rate cut on Wednesday and a signal of more to come.

The Reserve Bank would be “a little bothered” by the apparent increases in consumer inflation expectations and business pricing intentions in ANZ’s surveys, he said.

– Additional reporting by Liz McDonald