Westpac economist says rate cuts haven't yet translated into stronger spending
Cautious spending behaviour continues to weigh on New Zealand’s retail sector, with Westpac NZ senior economist Satish Ranchhod pointing to households holding off on non-essential purchases despite falling interest rates.
That restraint was reflected in April’s retail card spending, which showed no monthly growth and followed a 0.8% decline in March. The result fell short of Westpac’s forecast for a modest rise. Excluding fuel, core spending went up 0.2% for the month and 0.8% year-on-year, while overall spending was down 0.3% compared to April 2024.
Ranchhod said part of the overall softness was linked to lower fuel prices, which were down 2% for the month. However, the savings from the pump didn’t appear to translate into increased spending elsewhere.
“In part, some of the softness in spending was due to falls in petrol prices, with fuel spending down 2% over the month. However, that fall in fuel prices should have put more money back into people’s pockets to spend elsewhere,” Rachhod said.
Grocery purchases were one of the few areas to record an uptick, with spending rising 0.5%. However, discretionary spending remained under pressure. Spending on household items and hospitality services stayed flat, while apparel spending continued to decline.
The muted spending comes even as fixed mortgage rates have dropped sharply over the past year—by between 170 to 200 basis points, according to Westpac. However, Ranchhod noted that many borrowers are still transitioning through higher short-term rates.
“Most New Zealand mortgages are fixed for a term, and many borrowers have rolled on to relatively expensive shorter-term rates while they’ve waited for interest rates to drop. As a result, the full impact of recent interest rate reduction is yet to flow though to households’ wallets.”
That impact may become more visible in the second half of 2025, as around half of all mortgages are set to be repriced in the coming six months. Ranchhod said this could lift disposable incomes and, in turn, household spending.
Still, he warned that any recovery will be gradual, as ongoing cost-of-living pressures and a soft labour market also continue to weigh on consumer sentiment.
“Even with the fall in interest rates, there are still some powerful headwinds that are weighing on household spending… Retail spending is likely to remain slow in the near term,” Ranchhod said.
