Kiwi households felt sharper rate bite
New Zealanders have faced far steeper interest rate hikes than Australians since the pandemic.
At the June 2024 peak, Infometrics data showed Australian home loan payments were 35% higher than pre-COVID, while New Zealand payments were 47% higher. Australia’s cash rate peaked at 4.35%, compared with New Zealand’s 5.5%.
Infometrics chief forecaster Gareth Kiernan (pictured left) said the UK’s even higher increase (54%) was cushioned by longer five-year loan terms, shielding many borrowers from immediate pressure, RNZ reported.
RBNZ’s aggressive hiking cycle
Kiwibank chief economist Jarrod Kerr (pictured centre) said it was the sharpest hiking cycle ever recorded from the Reserve Bank.
“They were super aggressive, and they were very worried about inflation – justifiably, but they were very worried, whereas the RBA was like, ‘we need to put interest rates into restrictive territory,” Kerr said. “We just don’t need to go as hard’… they were much more willing, much more relaxed to let things roll.
“It proved to be the better approach. You know, the Australian economy didn’t record a recession. They did in per capita terms, but they didn’t record an outright recession. Whereas we recorded quite a deep one.”
In its latest decision, the Reserve Bank of New Zealand cut the official cash rate (OCR) by 25 basis points to 3%, citing stalled recovery, rising unemployment, and subdued household spending. CPI inflation rose to 2.7% in June and is expected to reach 3% in September. The cut was reached by a 4-2 vote, signalling increasing divisions on the Monetary Policy Committee.
Rate cuts and market differences
While RBNZ has since begun cutting rates aggressively, the Reserve Bank of Australia has only lowered its cash rate by 75 basis points.
Kiernan noted that New Zealand’s one-year mortgage rates were down 243 basis points from their December 2023 peak by July 2025, while two-year rates fell 207bps and five-year rates dropped 103bps.
In Australia, compared to a 75bp fall in the cash rate, floating mortgage rates were down just 53bps, while shorter fixed rates were down 68bps over the same period.
Fiscal policy and shock value
ANZ senior economist Miles Workman (pictured right) said the RBNZ’s sharper peak was partly deliberate.
“It’s difficult to quantify, but there was an element of shock value in the RBNZ’s response to the inflation surge that followed the pandemic, with the RBNZ essentially telling us they are going to induce a recession,” Workman said.
“That likely added a degree of potency to monetary settings at the time, potentially enabling the RBNZ to get away with a lower than otherwise peak in the OCR. In other words, you could argue that a more gradual approach to past tightening would have been less effective … and may have ultimately required an even more prolonged period of interest rate squeeze.”
He also noted that New Zealand’s larger and more prolonged fiscal expansion relative to Australia necessitated higher rates.
“If the government chooses to expand at a time when there is no spare economic resource to accommodate that then much of the expansion is going to end up in higher than otherwise inflation pressures, and therefore higher than otherwise interest rates – that squeezes out the private sector in order to accommodate a larger public sector,” Workman said.
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