There could be good news on the horizon for Kiwis with mortgages battling the cost of living crisis, with an expert saying interest rate cuts look likely this year.
After battling the rising cost of living for over two years, New Zealand is on the brink of another technical recession after Gross Domestic Product (GDP) dropped by 0.3 percent in the third quarter of 2023.
The price of food is another headache, with the latest data from Stats NZ showing annual food price inflation was 4.8 percent in December.
But there are signs the pressure could slowly be easing on struggling Kiwis, with ASB expecting annual food price inflation to fall below 3 percent by mid-2024.
The prices of petrol, accommodation, tobacco and alcohol also eased in December, which would have helped inflation track down.
Milford Asset Management investment analyst Katlyn Parker joined AM on Thursday morning to discuss the outlook for interest rates in 2024.
The Reserve Bank (RBNZ) has left the 5.5 percent official cash rate (OCR) unchanged for its past five meetings after tightening it 12 consecutive times before that.
Parker told AM on Thursday interest rate cuts are expected this year.
"2023 was all about when are central banks globally going to stop hiking interest rates, and the narrative has definitely shifted for 2024 to when are central banks going to start cutting interest rates," she told AM co-host Lloyd Burr.
"In general, around the world, markets are expecting central banks to start cutting interest rates this year."
But Parker warned expectations could be too high.
"There is a risk the markets are expecting too much too soon in terms of the timing and the pace of those interest rate cuts because unfortunately it still comes down to inflation," she said.
"Policymakers need to be really comfortable that they've got a grasp on inflation, and we are definitely seeing some softening come through, but we probably do need a bit more data for central banks to have that comfort that they've really conquered the issue."
December's 4.7 percent annual inflation rate, reported last week, was the first time in more than two years the consumer price index had been below 5 percent.
Experts, like Parker, have been debating whether to cut New Zealand's official cash rate (OCR) in the coming months, in the wake of declining inflation.
But earlier this week, RBNZ's chief economist Paul Conway said New Zealand's domestic inflation is still too high.
Conway, responding to questions after a keynote speech on Tuesday, said while he didn't want to pre-empt the future path of the OCR, non-tradable inflation was "a long way" from the RBNZ's target range of between 1 and 3 percent.
Parker told AM while December's inflation rate was "great", inflation generated domestically is still "so strong".
"That's going to be a bit worrying for the Reserve Bank. So, the markets here in New Zealand are already expecting close to a percent in interest rate cuts this year - that's a lot of interest rate cuts," she said.
"The Reserve Bank are going to be very aware not to give the market any reason in order to start putting through more interest rate cuts into their forecasts."
The RBNZ's next monetary policy review is on February 28.
Watch the full interview above.
