Understanding the current financial market in New Zealand

BY JULIUS CAPILITAN, C21 THE MOSHI GROUP

There might be just over six weeks till the end of the year, but there’s only about one or two weeks left for new listings to come on the market. No matter whether you’re a buyer or a seller you’ll need to get your skates on if you want something to happen this year.

The Reserve Bank of New Zealand (RBNZ) recently lowered the Official Cash Rate (OCR) by 0.25%. For those unfamiliar, the OCR is the benchmark interest rate that influences the cost of borrowing from banks and the returns on savings. By reducing the OCR, the RBNZ is making borrowing more affordable, aiming to stimulate spending and investment, which are crucial in our current economic climate.

Over the past few months, inflation – the rate at which prices increase – has started to ease. This shift led the RBNZ to adjust its strategy, recognising that the economy might have slipped into a mild recession around the middle of this year, with the potential for a more severe downturn than initially anticipated. As the economy slows, "spare capacity" grows, meaning that resources like labour and capital are underutilised, which should help keep inflation under control moving forward.

Looking ahead, it’s likely that the RBNZ will continue to reduce the OCR by 0.25% at each meeting until it reaches a more neutral level – somewhere around 3.25% by late 2025. However, the pace of these cuts will depend on how quickly inflation continues to fall. If inflation drops faster than anticipated, larger cuts could be considered, although the RBNZ has already accounted for a weaker economic environment in the short term.

For those with loans or considering borrowing, this is positive news as lending rates (the interest paid) are likely to continue dropping. However, returns on savings might decrease as well

The RBNZ is carefully balancing its approach to ensure inflation remains close to its target of 2%.

Growth forecasts have been revised downward, predicting slower growth or even a mild recession later this year. Unemployment is expected to rise slightly, peaking at about 5.4% by mid-2025. However, there is optimism that inflation will stabilise, with annual inflation likely to drop to around 2.3% by the second half of 2024.

LOOKING AHEAD

The key question moving forward is how far and how fast the OCR will drop. While the financial markets might speculate on larger cuts, it seems more likely that the RBNZ will stick to 0.25% cuts at each meeting unless economic conditions deteriorate significantly. For now, the focus remains on reducing borrowing costs, making this a potentially good time for new financial ventures, although savers should be mindful of decreasing returns.

FINAL THOUGHTS

At Century 21 Financial, we understand this market deeply and are here to guide you, whether you’re buying, selling, or simply seeking the right information to make sound financial decisions.

As a residential and commercial finance broker, my expertise lies in helping you navigate these economic conditions to grow your wealth or effectively manage your financial future. In these times of change, making informed choices is more crucial than ever, and I’m committed to providing the guidance you need to achieve your goals.