We break down why a July rate cut might be unlikely and what this means for Kiwi households. While GDP growth and inflation data surprised economists, everyday sentiment tells a different story - and the Reserve Bank of New Zealand’s next move remains uncertain.
Confusing Signals: GDP vs. Everyday Reality
The Reserve Bank forecasted just 0.4% GDP growth, but the economy doubled that at 0.8%. Despite this headline figure, many Kiwis still feel like nothing is improving. As discussed, growth from a position of economic contraction doesn’t feel like progress when people are still grappling with high interest rates, rising unemployment, and cost-of-living pressures. GDP numbers might impress economists, but households are feeling the pinch.
The Productivity Puzzle
Part of this disconnect comes down to New Zealand’s economic structure. Much of our GDP comes from property and farming – sectors that, while valuable, don’t drive high employment or productivity growth compared to industries like tech, manufacturing, or services. For example, a farm with 10,000 cattle might only employ 4 or 5 people. This limits the wider economic benefits households feel from such growth.
Inflation Heating Up Again
Another critical factor in the question is an OCR cut off the table is inflation. Previously expected to cool, it is now heating up again – driven heavily by rising oil prices due to tensions in the Middle East. As discussed, oil impacts not just fuel at the pump but shipping, plastics, and the production of almost every good in the economy. These supply-side shocks push up costs across the board.
Butter Prices and Sentiment
They also noted how rising butter prices – while frustrating for consumers – actually benefit New Zealand’s export economy. It’s another example of the difference between what economic data says versus how people feel day-to-day.
What’s Next for the OCR?
The OCR decision on 9 July remains a critical watchpoint. Predictions currently sit at roughly a 20% chance of an increase, with the remainder split between holding or a cut. However, given inflation pressures, an immediate cut seems unlikely. The Reserve Bank’s primary focus is keeping inflation within its target band, regardless of GDP or unemployment data. An OCR hike could act as a quick shock to dampen inflation, though it would add pressure to households already stretched.
Mortgage Rate Impacts
So, is an OCR cut off the table completely? Not entirely – but fixed mortgage rates are unlikely to move significantly in the short term. Any OCR move might shift rates by just five to ten basis points. Floating rates, however, would adjust directly with any decision. The team also revised their year-end OCR prediction from 4.1% to closer to 4.7%, acknowledging inflationary pressures and slower-than-hoped economic recovery.
Looking Ahead to 2025
While GDP is growing slightly and the economy is trending in the right direction, it’s clear that for many Kiwis, the finish line still feels far away. As we await the OCR announcement, experts agree that inflation remains the deciding factor for any potential cuts. And as Michael noted, 2025 is shaping up to be another year of slow grind and frustration as progress continues to take longer than hoped.
Key Takeaways
- GDP growth doubled expectations at 0.8%, but households still feel no improvement.
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Much of NZ’s growth comes from property and farming, limiting employment gains.
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Inflation is rising again, driven by oil price shocks from Middle East tensions.
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Butter prices benefit the economy but add pressure to household budgets.
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An OCR cut is unlikely soon; rates may hold or rise slightly to control inflation.
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Floating mortgage rates will adjust with OCR moves, but fixed rates should remain stable.
Next Steps:
Want clarity on how the OCR decision could impact your mortgage? Talk to the Lighthouse mortgages team today for a tailored strategy that works for you.
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Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
