Chief Property Economist Kelvin Davidson unpacks the February cash rate decision and Monetary Policy Statement, and what it means for the housing market.
Financial markets and economists were united in expecting the Reserve Bank to cut the official cash rate by 0.5% to 3.75% at today’s meeting, and this was duly delivered.
The barriers to the cut were non-existent, with inflation back inside the 1-3% target band and the economy still lacklustre. Anything other than a 0.5% cut would also have been surprising considering the clear signal given by the RBNZ at their last meeting in November.
Many of the forecasts attached to today’s Monetary Policy Statement weren’t too much different than last time either, including projections for a gradual recovery in GDP growth this year, the unemployment rate to peak shortly (if not already) and start to fall again, and for house prices to resume a modest upwards trend. Headline CPI inflation is also projected to hover around 2% for the foreseeable future.
But there was still some ‘surprise’ value in the forward track for the OCR itself, with the RBNZ now seeing a potential trough in the range of 3-3.25% being reached perhaps by the middle of this year rather than mid-2026 as previously thought. In other words, there still seems room for another 0.5% cut before a ‘final’ 0.25% fall thereafter. This seemed to reflect their view that the economy has more spare capacity than previously thought.
For the property market and mortgage borrowers, then, the key message is that interest rates seemingly have further to fall yet, although the drops to come could be a bit slower or smaller than those seen to date – especially since banks were already cutting in advance of today’s decision anyway.
It’s also going to be really interesting to see whether the recent stampede towards borrowers taking floating and short-term fixed rates goes into reverse at some stage in 2025, with the focus potentially shifting back towards longer-term fixed rates again.
Meet Kelvin Davidson
Chief Economist
Kelvin joined CoreLogic in March 2018 as Senior Research Analyst, before moving into his current role of Chief Economist. He brings with him a wealth of experience, having spent 15 years working largely in private sector economic consultancies in both New Zealand and the UK.
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