When Will Interest Rates Go Down?

When will interest rates go down? It’s a question on the lips of any homeowner with a mortgage. Between November 2021 and May 2023, the Reserve Bank (RBNZ) lifted the Official Cash Rate (OCR) from its all-time low of 0.25% to 5.50% – a level not seen since before the GFC, in 2008.

As a result, these increases in the cost of borrowing flowed through to mortgage rates. In August 2021, the average one-year fixed rate for owner-occupiers on Canstar’s mortgage database was 2.58%. At time of writing (11/07/24), the same rate is 7.18%.

But, fingers-crossed, it does seem we’ve passed peak mortgage pain. So far this year we’ve seen a slight reduction in average rates across all fixed terms. On Canstar’s database, the average 1-year rate has fallen from 7.49% at the beginning of the year, while 2- and 3-year fixed terms are also down around 0.3%.

And the RBNZ is now signalling the first cuts to the OCR might not be too far away. After revising its peak OCR predictions up in its May Monetary Policy Statement, the RBNZ pulled back on its hawkish stance in its briefer July Monetary Policy Review.

Acknowledging the sluggish state of the NZ economy, the Monetary Policy Committee noted that business activity had weakened and that all the data points to a declining economy. This, the committee members surmised, could indicate that their tight monetary policy might be “feeding through to domestic demand more strongly than expected”.

While the committee said that its monetary policy needed to remain restrictive, it added that the extent of its restraint would “be tempered over time consistent with the expected decline in inflation pressures”. And since the RBNZ sees inflation falling to within its 1%-3% target range in the second half of this year, that could mean rate cuts by Christmas.

Indeed, market pricing has already factored in a 25bp cut for October, increasing to a full 60bps of cuts by the end of the year. Which would certainly be a nice Christmas present for Kiwi borrowers.

So given the recent mortgage rate cuts, and the RBNZ’s revised OCR outlook, when are interest rates likely to come down enough to bring relief to homeowners, investors and business owners? Let’s take a look at what the major banks predict.

Below is a quick overview of the banks’ OCR forecasts. Click on each to jump to a more detailed overview of their predictions:

• ANZ: First cut to the OCR coming in November, as long as inflation figures fall within target range.
• ASB: Expects the RBNZ will start cutting the OCR in November, but cuts could come earlier.
• BNZ: First rate cut will be in November.
• Kiwibank: Rate cuts by November 2024, at the very latest.
• Westpac: First cut to the OCR to 5.25% in February 2025, with some chance of a November easing.

ANZ

Of all the banks over the past two years, the ANZ has been the most hawkish on interest rates. Indeed, early this year in its February Property Focus, it was predicting two more OCR hikes and the possibility that mortgage rates could creep even higher.

However, since then the ANZ’s economists have recalibrated their slide rulers a few times, pulling back their forecasts for the first OCR cut from May to February 2025, and now to November 2024.

The ANZ also acknowledges how downbeat the markets are on the NZ economy and that the trend lower in rates is likely to continue, especially if inflation continues to fall.

ASB

Over the past six months, the ASB has wavered about the timing of the first OCR cut. Towards the end of 2023, in its Economic Weekly reports, it forecasted the OCR to hold at 5.5% until February 2025.

Then, earlier this year, it pulled back on its prediction, pencilling in November 2024 as the month that the RBNZ would start to wind back the OCR. But then, a couple of months later, it pushed out the chance of any rate cuts until at least February 2025.

Now it says that a “softening labour market, weak demand and squeezed businesses profitability suggest OCR cuts are nearing”. It expects the RBNZ will start cutting the OCR in November 2024, but that cuts could come earlier, and by more than 25bps over the rest of the year, due to cooling inflation.

This is good news for mortgage holders, and the bank predicts that short-term mortgage rates will be “modestly lower from later in 2024”.

However, it warns that we shouldn’t expect a return to the pandemic’s low-rate environment. The ASB notes that 5-year fixed rates are already below their 20-year average, so we shouldn’t expect them to move much. But it expects shorter-term rates to fall considerably over the next couple of years:

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BNZ

At the end of last year, the BNZ’s chief economist, Mike Jones predicted that the only way for the OCR during 2024 was down, due to the NZ economy being in such poor shape, and that by now we’d probably already be enjoying a lower OCR. But then in the wake of the RBNZ’s hawkish tone back in May, the bank pushed out its prediction of the first cash rate cut to February 2025.

However, in the lead-up to the July Monetary Policy Review, given the country’s economic pain, the BNZ predicted that it would be “hard for the RBNZ to avoid acknowledging that the economy is now looking well and truly derailed”.

And that’s pretty much what the review committee did. So, due to the RBNZ’s shift in tone, the BNZ now says that it has “reverted to forecasting the RBNZ will cut rates in November”. Indeed, the bank notes that the market has already fully priced in a rate cut in November.

Kiwibank

Towards the end of last year, Kiwibank was consistent in saying that interest rates had hit their peak, and that a cut to the OCR would arrive in May 2024, with mortgage rates to follow. But the RBNZ’s more aggressive stance in May saw Kiwibank shift its OCR cut forecast out to November.

But Kiwibank has long been touting the weakness of the NZ economy and the need for OCR cuts earlier rather than later, so it has welcomed the RBNZ’s new softer tone.

Noting that market traders already expect a full 60bps of cuts by November, and the gallows level of confidence amongst households, Kiwibank predicts rate cuts by the end of the year.

In their review of the RBNZ’s review, Kiwibank’s economists write: “We’re confident that the next move in rates is down. And we’re growing in conviction that the easing cycle will begin in November – at the latest.”

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Westpac

Westpac has long been one of the more hawkish banks when it comes to the OCR. And after the RBNZ’s first Monetary Policy Statement of the year, back in February, Westpac’s chief economist Kelly Eckhold said the bank remained comfortable with its view that the OCR would remain on hold over 2024, before experiencing a gradual easing cycle beginning early in 2025.

But in the face of the RBNZ’s recent dovish stance, Westpac issued a mea culpa: “We didn’t think the RBNZ would have any significant change in message to communicate and wouldn’t be keen to endorse recent dovish market pricing suggesting meaningful chances of OCR cuts by the end of 2024. This was wrong.”

The bank says that if inflation continues to fall it “could open up a shift to a November easing forecast”. But it still thinks that to be unlikely, stating that it retains its call for a “first cut to the OCR to 5.25% in February 2025”.

But it’s worth noting that a day after the RBNZ’s review, Westpac announced rate cuts of up to -0.25% across its fixed rate special home loans up to 18 months.

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About the author of this page

This report was written by Canstar’s Editor, Bruce Pitchers. Bruce has three decades’ experience as a journalist and has worked for major media companies in the UK and Australasia, including ACP, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.