No interest rate relief: RBNZ holds cash rate in July

5 strategies for advisers to navigate a high-rate environment

No interest rate relief: RBNZ holds cash rate in July

The official cash rate (OCR) has been left unchanged at 5.50%, the Reserve Bank of New Zealand (RBNZ) has announced.

Delivering the third Monetary Policy Statement and OCR for the year on Wednesday, the RBNZ left the wholesale cash rate unchanged as widely forecast.

The decision for the RBNZ to hold its ground came as calls for an earlier rate cut this year strengthen amid a struggling New Zealand economy barely out a technical recession.

As inflation proves sticky and above the target band, the central bank had previously maintained rate relief won’t happen until August next year.

However, RBNZ said that restrictive monetary policy had significantly reduced consumer price inflation, with the Committee expecting headline inflation to return to within the 1%-3% target range in the second half of this year.

“Some domestically generated price pressures remain strong. But there are signs inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions,” said the statement.

“The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.”

However, as inflation proves sticky and above the target band, the central bank maintained rate relief won’t happen until August next year.

Is interest rate relief getting closer?

Kelly Eckhold, (pictured above left), Westpac’s chief economist, pointed to several important data releases that lie ahead, notably the Q2 CPI and labour market reports. RBNZ will want to see this data before contemplating any change in stance.

“The August monetary policy statement meeting will see the RBNZ present updated projections for the economy and a refreshed track for the OCR,” Eckhold said.

However, the RBNZ could be “getting closer” to providing mortgage holders with interest rate relief despite the latest rate hold, according to Finsure NZ Country Manager, Jenny Campbell (pictured above centre).

Campbell said whilst it was “no surprise” for the central bank to maintain the OCR at 5.50% on Wednesday July 10, the nation’s economy would benefit from rates being cut.

“Inflation has been steadily declining over the past two years, yet it is still not within the RBNZ’s 1%-3% target range,” Campbell said.

“Despite that, we are hoping for some rate relief soon as everyday consumers and small business owners need a break after such a sustained high interest rate period.”

After the RBNZ added 525 basis points to the OCR between 2021 and 2023, the central bank has now left rates unchanged for eight consecutive meetings.

“Borrowers are cautiously optimistic of a rate reduction in the near future should the latest consumer price index (CPI) release next week show a continuation of the downward trend and convince the RBNZ to provide rate relief when it meets again in August,” Campbell said.

“I imagine we’ll be seeing an influx of short-term fixed loans as advisers anticipate a rate cut in the coming months.”

5 strategies for advisers to navigate a high-rate environment

With the cash rate held at a 15-year peak of 5.50% and the likelihood of monetary easing possibly pushed until 2025, advisers in New Zealand must navigate this complex landscape to provide the best advice and support to their clients.

Julian Fayad (pictured above right), founder of mortgage fintech, shared some tips to help advisers offer the most effective strategies in this uncertain environment.

  1. Stay updated with RBNZ decisions and market trends

Keep a close watch on the Reserve Bank of New Zealand's announcements and market reactions.

Fayad said advisers should regularly update clients with tailored insights about how these changes might affect their specific loan conditions and financial plans.

“If you can manage it, personalised messages can go a long way to strengthening client relationships,” said Fayad,  

“Furthermore, webinars can be a great way to offer valuable context and demonstrate your expertise.”

  1. Go ‘above and beyond’ in customer service

“Don’t hide away. Instead, use the rate rise announcement as an opportunity to deepen your client relationships,” said Fayad.

“Offer one-on-one consultations to review their financial situation and provide tailored advice. Leverage video calls, personalised emails, and social media updates to stay connected and show your commitment to their financial well-being.”

  1. Leverage localised loan matching tools

Embrace technology that caters to the New Zealand market.

“Our loan matching technology considers the unique aspects of the NZ financial landscape,” Fayad said.

“This can help you present the best refinancing and loan consolidation options to your clients, ensuring they receive the most relevant and effective solutions.”

  1. Provide education on financial strategies

Offer guidance on managing loan repayments in the context of New Zealand's economic environment. Fayad said it would be “very much welcome” by clients who will be looking to experts for support.

 “Share budgeting tips, strategies for reducing debt, and advice on making informed financial decisions,” he said.

“Providing localised financial literacy resources can empower your clients to navigate the rate rise more confidently.”

  1. Compare the pros and cons of fixed and variable rates

Discuss the pros and cons of fixed and variable rate loans with your clients.

“Given the potential for future rate changes, help them understand which option aligns best with their financial goals and risk tolerance,” Fayad said.  

“Again, there are technologies that can be leveraged to help save clients’ money in the long run and the smartest brokers are leaning on them.”