"We're miles away from adding inflation pressure domestically," economist says
ASB has slashed fixed home lending rates by up to 16 basis points across five terms, offering immediate relief to mortgage holders and prospective homebuyers. This comes as economists increasingly signal the Reserve Bank should cut the Official Cash Rate (OCR) more aggressively.
ASB reduced rates on its most popular terms, with the six-month rate dropping 16 basis points to 5.29% and the one-year rate falling six basis points to 4.89%. ASB's executive general manager personal banking Adam Boyd noted that there would be a material impact for borrowers, highlighting that those on the 12-month fixed rate are now paying 2.50% less interest than 18 months ago.
"On a loan of $500,000, this reduction in interest translates to an extra $12,500 a year which will make a real difference to many households across the country," Boyd said.
The rate cuts come alongside reductions to some term deposit rates, with decreases between 5 and 20 basis points taking effect immediately.
OCR path remains clouded
While banks move to ease lending conditions, economists remain divided on the Reserve Bank's next steps, with the July Monetary Policy Statement looming as a critical decision point.
Kiwibank chief economist Jarrod Kerr said on Markets, Mystics and Mayhem that the central bank faces uncertainty despite a clear economic case for cuts. "I think we're going into the July meeting with our hands in the air as to what the Reserve Bank is going to do,” Kerr said. “What they should do is still quite clear in my opinion – they should be cutting, and they should be looking to go below neutral."
The economy's trajectory supports aggressive easing, according to Kerr, who pointed to the Government's restrained growth assumptions in recent budget forecasts.
"The economy has been through quite a hefty recession, and we're miles away from adding inflation pressure here domestically," he said.
Government projections assume a Cash Rate of 2.50% through to 2029, with Kerr noting that "a lot of serious forecasters are saying 2.50% and waiting for RBNZ to pick up on that."
However, near-term inflation pressures complicate the picture. Kiwibank senior economist Mary Jo Vergara expects annual inflation to hit 2.70% this year, potentially rising toward 3% due to recent oil price increases.
Despite this temporary spike, Vergara said the medium-term outlook strongly favours stronger stimulatory settings.
"If you look at the risk to medium-term inflation, it's all tilted to the downside," Vergara said. “You’ve got global demand potentially slowing because of the tariff situation disruption trade, we still have a lot of spare capacity within the New Zealand economy…and that’s disinflationary. There’s also the potential that we see this lift in oil and food prices unwind.
"Put that all together, and inflation in the medium term could actually fall below the Reserve Bank's 2% target. If that is your trajectory, the case there is for more monetary support."
The Reserve Bank continues signalling rate cuts ahead, though Vergara noted "the path towards their end point is a little bit more clouded" given near-term inflation dynamics.
Kerr added that upcoming inflation expectations data will be crucial for the central bank's decision-making. "The inflation expectations survey is critical. If we do see things lifting up, that will make [RBNZ] nervous," he said.
With the July meeting approaching, the Reserve Bank appears "very open-minded" according to Kerr, as it weighs immediate inflation concerns against mounting economic weakness and medium-term disinflationary pressures.
