An economist says homeowners are already benefiting from interest cuts despite the Reserve Bank (RBNZ) reinforcing its view that there will be no relief anytime soon.
On Tuesday, the RBNZ's chief economist said New Zealand's domestic inflation is still too high for official cash rate (OCR) cuts in the near future.
While New Zealand's inflation has slowly been decreasing from its 2022 peak at 7.3 percent, currently sitting at 4.7 percent, it is still a long way from the target range of between 1 and 3 percent. Meanwhile, non-tradable inflation (goods and services that do not face foreign competition) is sitting at 5.9 percent, much higher than the 2 percent target.
"Monetary policy is working, with the economy slowing and inflation falling. But we still have a way to go to get inflation back to the target midpoint," RBNZ chief economist Paul Conway said.
Both ANZ and BNZ are now predicting that New Zealand will start seeing cuts to the OCR around the third quarter of next year.
However, for cash-strapped homeowners, it's not all bad news as interest rate relief doesn't just come from OCR cuts.
Independent economist Cameron Bagrie said what we've already seen in the last few weeks is long-term fixed interest rates coming down from their peak due to financial markets anticipating in the future the OCR is going to come down.
"So, markets are already placing a bit of a bet. They think the job is done," he said.
Bagrie said there is currently a big disconnect between what the RBNZ is saying and what the markets are anticipating.
"At the moment, you've got what the market is continuing to believe versus what the Reserve Bank has set," Bagrie told AM co-host Lloyd Burr.
"The Reserve Bank is right to get out there and remind markets that the job is not yet done. What we are also seeing though is that markets are still pricing in a very aggressive rate-cut profile – you have five to six interest rate cuts over the next 18 months."
Bagrie said financial markets are pricing in three to four cash rate cuts in 2024 which he believes is at the "aggressive end of the spectrum".
He believes homeowners will see a follow-up decline in mortgage rates when the OCR actually goes down, as opposed to the anticipation it will go down, which he predicts will happen in 2025.
"But homeowners, to a degree, have already benefited because markets are pricing it in."
Watch the full interview above.
