The official cash rate (OCR) is heading down, but how low could it go?
The surprisingly negative GDP result for the June quarter is thankfully well in the rear-view mirror. But it does underline just how tough New Zealanders have had it for many months this year. With that GDP result in mind, economists now predict the Reserve Bank of New Zealand (RBNZ) will cut the OCR by 25 or 50 basis points (bp) in October and a further 25bp in November.
If that happens, we’ll cruise through summer with an OCR of 2.5% or 2.25%, which will give many households and businesses a bit of a boost. The Kiwibank team is now saying we need to have “a serious discussion” on cutting the OCR to 2%, with “the Reserve Bank’s foot firmly on the accelerator.”
How aggressive will RBNZ be with its cuts? It feels like the economy needs some serious stimulus, although RBNZ will have one eye on inflation, which still isn’t at the targeted 2%. October’s inflation data might be the deciding factor.
But whether RBNZ cuts to 2% or stops at 2.5%, these rates, coupled with strong commodity prices, should drive GDP recovery in the second half of this year and throughout 2026, according to the latest HSBC forecast.
And there’s recently been another encouraging indicator: SEEK says the local job market has finally turned a corner. Businesses only start to hire when they have more confidence in their pipeline of work, so the job market can be slow to get moving after a recession; the improving SEEK data, while modest, is a vote of confidence after a tough winter.
Finally, the housing market remains buyer-friendly, with first home buyers slowly coming back and investors beginning to jump back into the market, with a view to taking advantage of higher rental yields and slower long term capital gains.
What’s happening at Zagga?
With the decreasing OCR and limited activity in the borrower market, our rates are following suit, with borrower rates slowly dropping, flowing through to investors’ returns.
Zagga’s investor rates have remained above the market average for fixed income, property secured investments in NZ, currently between 7.2% – 7.8% p.a. However, with more cuts expected, we expect this to trend down towards the 6% range, still well above the current term deposit average of 3.6%.
While August and the start of September are traditionally quiet for new Zagga investments, this has picked up over the second half of September and we expect this will continue to grow between now and December.
We have some great new investments coming up in the pipeline, so keep an eye out over the next week.
As always, feel free to get in touch with any questions or feedback on borrowing or investing through Zagga.