Squirrel says OCR nearing neutral as market stabilises
New Zealand’s economy is showing early signs of recovery, with Squirrel suggesting the country is “very close to the bottom” of the interest rate cycle.
“With the official cash rate (OCR) down at 3.25%, we’re now just a fraction off the Reserve Bank’s estimated ‘neutral’ point of 3%,” Squirrel said in its June 2025 update. “At this stage, we expect another 0.25% cut on 9 July, which’ll get us across the line.”
While there’s some chance of the OCR dipping to 2.75%, improving conditions across agriculture and exports may limit further easing.
Mortgage rates near their lowest point
Short-term mortgage rates have already priced in much of the expected OCR movement.
“The best one-year rate we’re seeing is 4.89%… I see the one-year rate bottoming out at around 4.50%.”
Meanwhile, longer-term interest rates may face upward pressure due to global uncertainty.
Global risks cloud long-term rate outlook
Several overseas developments could push long-term interest rates higher.
These include the evolving US tariff environment, massive US debt maturities, and the risk of an oil price spike due to the Iran-Israel conflict.
“There’s a good chance that the US may be forced to raise longer-term interest rates to attract other investors,” Squirrel said.
Borrowers urged to consider split-term strategies
With short-term rates nearing their floor and long-term risks rising, borrowers are advised to spread their mortgage terms.
“Splitting your loan across a mix of shorter and longer terms is still a good idea,” Squirrel said. “If you can get a three-year rate below 5%, I’d say go for it.”
Housing market shows regional divergence
New Zealand’s property recovery remains uneven, with the South Island leading the way.
Census data showed 86,000 people moved south between 2018 and 2023 – 30,000 more than those heading north – driven by affordability and university access in cities like Christchurch. Trade Me reports the average North-South price gap has halved since 2021, reflecting growing demand for southern property.
“The South Island is doing well, and the rural economy is starting to pick up, but major centres like Auckland and Wellington still have a ways to go,” Squirrel said.
Christchurch, in particular, is benefiting from strong domestic migration, better affordability, and higher business confidence.
“Auckland and Wellington will get there eventually; it’s just taking longer,” Squirrel said.
Flat prices expected for next 18 months
House prices are likely to remain steady in the near term, with only moderate recovery potential in major centres.
“I expect house prices to remain flat for the next 18 months… there’s scope for a recovery, particularly in Auckland and Wellington… but it won’t be massive,” Squirrel said.
Deglobalisation and AI pose long-term disruption
Beyond interest rates and housing, Squirrel flagged global deglobalisation trends and the rise of artificial intelligence (AI) as key macroeconomic wildcards.
“As AI gets smarter, and its outputs become more reliable and accurate, that could ultimately be hugely deflationary on the services side of the global economy,” Squirrel said.
While exciting, the rapid advance of AI also raises questions about job displacement and productivity gains.
