A cut is all but confirmed, but will it go far enough? Industry players weigh in
With Budget 2025 now revealed, all eyes are turning to this week’s Monetary Policy Statement from the Reserve Bank. A cut to the Official Cash Rate is all but baked in, with most expecting a 25 basis point move. But the bigger question isn’t just whether rates are coming down – it’s how fast, and how far.
From businesses sitting on paused development plans, to thousands of mortgage holders facing refixes, the sense of cautious optimism is building – but it hinges on whether the RBNZ is ready to start moving decisively.
The case for more, not less
Kiwibank economists are clear in their latest take: “The RBNZ has more work to do.” While the Reserve Bank is signalling a cut to 3.25% next week, Kiwibank believes it should go further, recommending a 50bp drop now, followed by a path to 2.5%.
“The weakness in the economy is clear and demands more attention and less restriction,” Kiwibank’s latest commentary said. “A more decisive RBNZ would be viewed positively… given the difficulty the Government had in balancing [last week’s] budget.”
For mortgage advisers and clients, that urgency will be a significant predictor of strategy over the coming months. The economy is moving slowly, but the clock is ticking for borrowers. A large portion of fixed rates are due to expire within the next year, according to The Adviser Platform’s managing director, Ryan Edwards, so the extent of the cuts will be a key determinant of how much financial pressure households will face – or be relieved of – in the months ahead.
Edwards also noted that the ultimate goal is always to deliver good advice, no matter the circumstances.
“We're continually focused on helping advisers deliver advice efficiently, without getting bogged down in admin and governance at the expense of giving sound advice,” Edwards told NZ Adviser.
“With more than 75% of mortgage holders having a fixed rate expiry sometime in the next 12 months, there are thousands of people that could benefit from advice. We're working with advisors to ensure clients are communicated with effectively, and often, particularly leading up to a fixed-rate rollover, as well as risk and investment reviews.”
Phil Bennett, head of lending at First Mortgage Trust, isn’t predicting a “significant” cut this week, but noted that he is already seeing glimmers of renewed confidence.
“The market appears to be expecting a further reduction in the OCR,” he said. “While it may not be a significant cut, a continued downward trend would support a more positive sentiment. I’d describe it as cautious optimism.”
That cautious optimism is starting to translate into more activity. Developers and investors who had shelved plans due to higher funding costs are beginning to revisit stalled projects, and lenders are reassessing how risk is priced.
“This is likely to encourage activity around planned development projects and capital expenditures, many of which have been on hold or lacking funding since the last market peak in 2021,” Bennett said.
Three possible paths
Kiwibank laid out three scenarios for next week’s meeting, only one of which they believed will hit the mark. The first – what they called “lifeless” – would see a 25bp cut with little change to the future OCR forecast. The bank warned that this could lift wholesale rates and lead to higher borrowing costs.
The second is the base case: a 25bp cut and a lowered OCR track to around 2.8%. That may stabilise mortgage rates, but wouldn’t move the needle much on confidence or affordability.
The third, and what Kiwibank argued is most needed, is a 50bp cut and a signal that the OCR is heading to 2.5%. “The shock without Orr would see wholesale rates poleaxed,” Kiwibank said. “All mortgage rates are likely to be lowered, as needed”.
For Ryan Edwards, the focus isn’t just on the number the RBNZ lands on next week, but on what it triggers in terms of public confidence and financial decision-making. He says that these moments, whether it's a rate cut, a Budget announcement, or a regulatory tweak, are powerful touchpoints for adviser engagement with clients.
“The regular RBA updates and this year's budget provide plenty of material to engage in financial advice and wellbeing conversations,” Edwards said.
“A reduction, or continued stability in rates can lead to an increase in optimism and people seeking to invest or grow their portfolios, creating opportunities for advice. Change is the only constant in life, advisers play an important role in helping clients navigate change and plan for the future.”
