The verdict is in, and—no surprises—the Reserve Bank (RBNZ) opted to hold the Official Cash Rate (OCR) steady at 3.25% on 9 July.
I say no surprises because:
- It’s what the RBNZ told us it was planning to do in May.
- Large parts of the market had been calling for the move (or lack thereof) in recent weeks.
The thinking is that now we’re seeing more signs of life starting to emerge in the economy, it makes sense to sit back and let previous rate cuts flow through properly before taking further action.
For what it’s worth, I disagree.
Yes, things are starting to look up—we had a stronger than expected GDP result in the March 2025 quarter, business confidence turned slightly positive in June, and agriculture is doing well—but the economy is still a long way off firing on all cylinders.
Unemployment is still at 5.1%, and I cannot see a hint of wage inflation. The positivity we’re seeing in some parts of the economy (agriculture, the regions, and the South Island) will eventually filter through to the rest of us, but it’s going to take some time.
On balance, I just don’t think there’s enough good news out there for the RBNZ to be abandoning its strategy of getting us back to ‘neutral’ (i.e. an OCR of 3.00%) as quickly as possible.
Especially not when we’re already so close to the bottom.
Our next OCR announcement is on 20 August, and that should get us across the line. That one’s a full Monetary Policy Statement as well, which means we’ll get the RBNZ’s updated interest rate forecast, laying out what it has in store for us from there.
We’ll also have a new RBNZ Governor starting in October, when Christian Hawkesby wraps up his six-month interim stint. Once that appointment has been made, it will be interesting to see what Adrian Orr’s permanent successor does.
What does this week’s OCR news mean for interest rates and borrowers?
We’re so close to the bottom of the cycle anyway that even if the RBNZ had gone ahead with another cut this week, it wouldn’t have made much difference to fixed rates.
As it is, interest rates should remain relatively stable over the coming weeks—just continuing in the holding pattern they’ve been in for a while.
For now, the best one-year rate we’re seeing out there is 4.89%, two years at 4.95% and three years at 4.99%.
Moving forward, anything under 5% is a good deal. That three-year rate, in particular, is really competitive given some of the potentially inflationary forces playing out (especially Trump’s tariffs) threatening to hold longer-term rates up.
In this environment, the recommendation for borrowers is to split their loans between a mix of shorter and longer terms.
Having part of your loan fixed short-term means you’ll be able to benefit should rates come down a bit further, while having interest rate certainty over the remaining portion that’s locked in longer term.
And just to quickly touch on what's been happening in the housing market.
Buyer activity is picking up—but it’s coming in fits and starts.
That’s pretty typical of a post-recession housing market. It’s also exactly what happened as we emerged from the GFC.
First home buyers are making up the lion’s share of buyer activity right now. Still, property investors are also coming back into the market in greater numbers, tempted by lower house prices and the prospect of getting a good, cheap deal.
On the topic of house prices, the South Island market generally—and Christchurch in particular—is picking up. Wellington has recovered somewhat. But in Auckland, house prices are still down.
So, it’s a mixed bag out there—and different parts of the market will make their recovery at different paces.