What to expect from the RBNZ’s OCR decision

BY JULIUS CAPILITAN, C21 FINANCIAL

The Reserve Bank of New Zealand (RBNZ) has delivered its fourth consecutive 50-basis-point (bp) cut, reducing the Official Cash Rate (OCR) from 4.25% to 3.75%. This move aligns with the central bank’s ongoing efforts to stabilise economic growth following last year’s weak GDP data and reflects its confidence that inflation will continue to ease.

Looking ahead, the pace of future rate cuts may slow. Current projections suggest two additional 25bp cuts in April and May, bringing the OCR to 3.25%–likely the floor for this cycle. However, external factors such as global market volatility and potential disruptions from U.S. trade policies could influence how much further rates decline.

INTEREST RATES AND MORTGAGE MARKET IMPLICATIONS

For mortgage borrowers, now is a strategic time to assess rate options. With a 50bp cut to the OCR on the 19th of February, short-term floating rates could be advantageous for the near term. Borrowers may consider:

• Floating until early March , when the latest OCR adjustments filter through to bank rates. - Currently, we have only seen floating, flexible and testing rates reduced.

• Fixing short-term (six months) to lock in relatively low rates before the RBNZ’s easing cycle nears its end.

• Waiting for further reductions , though long-term fixed rates may not fall significantly from current levels. Julius Capilitan says: "Best we have seen on the market is a 4.99 for two years but are waiting on a share long 4 or 5 year rate".

WHAT THE OCR CUT MEANS FOR HOMEOWNERS AND BUYERS

For borrowers, falling interest rates have already created opportunities to secure more affordable mortgage repayments. Many homeowners have either refinanced or taken short-term fixed rates, hoping to take advantage of further OCR cuts.

Julius Capilitan says: "We’ve seen a trend of borrowers fixing for shorter terms to benefit from the rate drops, and that strategy has paid off. But as the RBNZ nears the end of its rate-cutting cycle, it’s time to reassess whether locking in a longer-term rate now might be the smarter move."

A recent analysis by bank economists suggests that while further 25bp cuts in April and May are likely, bringing the OCR down to 3.25%, the risk is shifting. While borrowers have enjoyed falling rates for months, the market might be overestimating how low rates will go. Currently, we are able to secure 4.99% fixed for 2 years for our clients.

HOW MUCH LOWER CAN INTEREST RATES GO?

A 3% OCR by the end of 2025 is already priced into financial markets, meaning that banks have factored in further cuts into their lending rates. But, could the RBNZ stop cutting sooner than expected?

• GDP Data: The economy has been weak but more resilient than expected over 2022-23, meaning the RBNZ may not feel as much urgency to keep slashing rates.

• Inflation Risks: While inflation is easing, headline inflation could tick up again in 2025 as global factors shift.

• Global Uncertainty: The U.S. election and potential trade policy shifts could add volatility to global markets, impacting how far interest rates can fall.

FIX NOW OR WAIT? WE CAN HELP YOU DECIDE

Many borrowers are now caught between taking a ‘bird in the hand’ (fixing at today’s lower rates) or waiting for ‘two in the bush’ (potential further cuts). But there’s no one-size-fits-all answer.

Factors to consider:

• How long you plan to stay in your home

• Your financial flexibility to handle future rate movements

• Whether short-term savings outweigh long-term stability There’s also another key risk: if too many borrowers rush to fix their rates at once, wholesale rates could rise, making it harder to secure the lowest possible rate.

At Century 21 Financial , we do all the calculations for you to determine whether locking in now or waiting it out makes the most financial sense based on your personal situation.

Julius Capilitan says: "We take the guesswork out of it. If you're unsure whether to fix or float, let’s chat and make sure you're getting the best rate possible while avoiding potential risks in the market."