Why Mr 29% will be banking on yesterday’s 0.5% rate cut

Thursday, 9 October 2025

OPINION: Two weeks after grim data showed the economy moving backwards, the Reserve Bank of New Zealand has responded, slashing interest rates by a big 50 basis points.

There are now two big questions. The first is about the likelihood of future rate cuts after the bank said it was open to “future reductions” - plural. The bank is clearly giving itself the flexibility to go further. And this was a consensus decision, not a split call.

Westpac, ASB, BNZ, ANZ and KiwiBank’s economics teams have already predicted that rates will come down another 25 basis points in November - with possibly more to come next year.

At the time of writing ANZ had already lowered its floating and flexible loan rates - having dropped its 1 year fixed rate last week. Westpac and ASB then moved.

Economic data over the coming six weeks will clearly be key to both the November call and further guidance.

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The second big question - and one of more immediate political importance - is the extent to which people will be saving or spending their hard-earned money. Up to now, a lot of money has gone into households paying down debt - a rational and prudent course of action after a period of rapidly increasing interest rates and high inflation.

Within the Beehive, there has not been frustration so much as an acknowledgement that the rate cuts have not produced political good times for the Government precisely because they have been effectively saved by burnt households.

Now with about half of the nation’s mortgage book coming off current fixed rates over the next six months, the effect of another two rates cuts may finally see the Government get some level of optimism off the back of increased economic activity.

“Over the next six months, around half of mortgage debt will roll off a high interest rate, giving those people an opportunity for a lower interest rate,” Finance Minister Nicola Willis said.

“So what that suggests is that we are not yet feeling the full effect of interest rate reductions that have already happened, and we should be able to see accelerating relief.”

Now to see how that translates to forward investment intention, business and consumer confidence. And confidence in the Government itself - particularly the National Party leader and prime minister.

Notably, unlike past rate cut calls when Christopher Luxon and Willis turned up and claimed credit for low interest rates, a more subdued Willis appeared alone saying it was evidence that the central bank was doing its job keeping inflation under control.

On LinkedIn, Luxon was also uncharacteristically restrained.

“Interest rates have been reduced once again, and Kiwis will pay less on their mortgages as a result. This is positive news for those with a mortgage – it means more money in Kiwis’ pockets.”

But there was yet another data point that confirmed the Government is under strain. The latest Taxpayers’ Union Curia Research Poll (also National’s pollster) has the National Party dipping under 30% in that poll for the first time since Luxon became party leader in 2021.

On that number the Government would not be re-elected, but as with every poll recently, it is pretty tight overall. National would take a big hair cut.

For the National Party in particular this is more bad news. Winston Peters goes up into double digits, while ACT has drifted downwards to a bit under 7%, down from the consistent polling around 10% it was recording last year.

No major party has won Government getting a vote level in the 20s, and Simon Bridges was rolled as National leader after scoring a poll at 29% in May 2020. At the time, I wrote and called Bridges Mr 29%.

He was rolled the next day. It is different this time. There is no pandemic, National is in government and does actually have viable coalition partners. And in hindsight, MPs around then would admit moving to short-lived Todd Muller was a big mistake.

Still, on this poll National would go from 49 seats in Parliament to 38 seats. And aside from losing government, most high-ranked list MPs or those in marginal seats would probably lose their jobs such as Willis, Paul Goldsmith and Chris Bishop.

A note of caution. It is only one poll in the 20s - and if rounded up would actually be 30%. The next poll can always pop back up.

But there has been a grinding trend downwards for the National Party. And one that, if it stays in the 20s, will be extremely uncomfortable and probably unsustainable for its leadership.

And on face value it should not be like this. In one of the TPU’s other charts in the full polling report, National is leading Labour on every major issue except health. It should be dominating the opposition. Something is going wrong.

In the end, politics at all levels is governed by numbers. The Government is simply unlikely to be returned with a National Party polling in the 20s. This 0.5% cut in the interest rate could see households come to the support of National. But other rate cuts have not to date. Other numbers, such as consumables prices, loom larger in the public mind. And who, if anyone, would do better than Luxon?

Leadership changes come with high transaction costs. But those costs in government can be ‒ and often are ‒ worth it if the other option is losing power. Or losing lots of MPs to both the opposition and coalition partners.