When Will Interest Rates Go Down?

When will interest rates go down? It’s a question on the lips of any homeowner with a mortgage. Over the past three years, the Reserve Bank (RBNZ) has lifted the Official Cash Rate (OCR) from its all-time low of 0.25% to 5.50% – a level not seen since before the GFC, in 2008.

As a result, these increases in the cost of borrowing have flowed through to mortgage rates. In August 2021, the average one-year fixed rate for owner-occupiers on Canstar’s mortgage database was 2.58%. At time of writing (07/03/24), the same rate is 7.40%.

However, fingers-crossed, touch wood, it finally looks like we’ve reached peak mortgage pain. And, indeed, so far this year we have seen a slight reduction in average rates across all fixed terms. The average 1-year rate is down from 7.49% at the beginning of December last year, while 2- and 3-year fixed terms are down 0.19% and 0.15%, respectively.

Internationally, the interest rate cycle has turned, and major central banks are now pricing in rate cuts over the coming months. And here, too, the RBNZ has backpedalled on its hawkish November 2023 OCR announcement.

Rather than jawboning the need for potential further rate rises, in its latest Monetary Policy Statement, the RBNZ talks of keeping the OCR steady at current levels for a while longer, and flags cuts by the end of the year.

RBNZ OCR Forecast

So given the recent mortgage rate cuts, and the RBNZ’s revised OCR outlook, when are interest rates likely to come down enough to bring some relief to mortgaged homeowners and property investors. Let’s take a look at what the major banks predict.

Below is a quick overview of the banks’ OCR forecasts. Click on each to jump to a more detailed overview of their predictions:

• ANZ: No further OCR rate hikes, however it to remain at its current level until mid-2025
• ASB: No more rate rises, an initial cut to the OCR in November, followed by gradual trimming to 3% by mid-2026
• BNZ: Mortgage rates to continue to fall, along with first OCR cut in August
• Kiwibank: No more OCR increases, rate cut by November 2024, possibly August, along with lower mortgage rates
• Westpac: No further lift to the OCR but no cuts until Q1 2025, although mortgage rates could fall earlier

ANZ

Of all the banks over the past year, the ANZ has been the most hawkish on interest rates. And, indeed, in its February Property Focus, released in the lead-up to the RBNZ’s most recent announcement, the ANZ predicted two more OCR hikes and the possibility that mortgage rates might rise if wholesale market interest rates lifted following a hike.

However, following the RBNZ’s meeting, on February 28, the ANZ swiftly issued a mea culpa, stating: “We got this one totally wrong.”

But while the ANZ’s economists admit that their crystal ball was on the blink when it came to predicting what the RBNZ was going to do, they still think that inflation is too engrained to permit cuts to the OCR, and subsequentially mortgage rates, any time soon.

Unlike the market, which the ANZ claims is now pricing in two cuts to the OCR by the end of the year, the bank thinks that the OCR is likely to stay at its current level well into 2025, along with elevated mortgage rates.

ASB

Towards the end of last year, in its Economic Weekly reports, ASB said that it expected the OCR to remain on hold at 5.5% until February 2025.

However, recently, it’s pulled back on this forecast, and is now pencilling in November as the month that the RBNZ starts to wind back the OCR. ASB says that inflation is tracking to be under 3% by the end of the year, which will give the RBNZ’s Monetary Policy Committee the confidence to start cutting the OCR, without risking inflation rebounding back up from its 2% target. 

The ASB’s economists write: “We expect inflation will be down to 2.6% in the September quarter, and the RBNZ’s current forecast is for 2.5%. Those are gate openers, provided other inflation indicators are looking on track. Given the lags in monetary policy impacts, at that point the RBNZ will need to think much harder about the risks of keeping rates too high for too long. But if there is anything we have learnt over the past four years it is how quickly things can get shaken up. So take November as a rough guess, and don’t bet your financial wellbeing on it.”

So although the bank is somewhat hedging its bets, its mid-range forecast is for an initial cut to the OCR in November, followed by a gradual trimming to 3% by mid-2026.

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BNZ

Despite the RBNZ’s hawkish statements in November, the BNZ’s chief economist, Mike Jones predicted that the only way for the OCR during 2024 was down, due to the NZ economy being in poor shape.

And the view of the BNZ remains that we’ll soon see cuts to the OCR, in August this year. Indeed, the bank has already started to price these lower rates into its fixed-term mortgages.

Last December, it cut its two- and three-year fixed home loan rates. And more recently, at the beginning of March, it trimmed its rates further, including its six-month and 1-year fixed mortgages, by between five and 10 basis points.

Going forwards, Mike says that: “rapidly falling inflation, an economy out for the count, a slackening labour market, and a housing market that so far hasn’t lived up to fears of resurgence still suggest to us that the Reserve Bank can lower the OCR later this year”.

Although Mike says rate cuts could come sooner (May), if “the wheels really fall off” the economy, he also says they could come later if the RBNZ really wants to ensure inflation is dead and buried. Although he’s sticking to his guns that mortgage rates have peaked and are likely to fall further this year.

Kiwibank

Towards the end of last year, Kiwibank was consistent in saying that interest rates had hit their peak, and that a cut to the OCR would arrive in May 2024, with mortgage rates to follow. However, last November, after the RBNZ took a more aggressive stance against inflation, Kiwibank shifted its OCR rate-cut forecast out to November.

But while Kiwibank is sticking to this date at the moment, it’s also now not ruling out the first cut arriving earlier, in August. It says that official numbers indicate a soft economy, rising unemployment, and a faster return to a 1%-3% inflation target band, which means the RBNZ’s monetary policy settings are clearly working.

The bank’s economists write that this has already been noted by financial traders, who are now expecting two OCR rate cuts by November, which would take it down to 5%. And, if this is the case, it could mean we can expect the first rate cut earlier than expected in August, which Kiwibank notes would be “good news for Kiwi businesses and households”.

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Westpac

Westpac has long been one of the more hawkish banks when it comes to the OCR. Up to the end of last year, it had forecasted an OCR increase early in 2024. However, in December, due to the country’s cooling economy, it did revise its predictions. Instead of a hike, it said the OCR would remain at 5.5% throughout 2024.

And, in the wash-up of the the RBNZ’s most recent Monetary Policy Statement and OCR review, Westpac’s chief economist Kelly Eckhold says the bank remains comfortable with its view that the OCR will remain on hold over 2024, before experiencing a gradual easing cycle beginning early in 2025.

As a result, for a homeowner faced with refixing their mortgage, Westpac says fixing for a shorter term could provide borrowers with “greater flexibility if mortgage rates fall later this year”.

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About the author of this page

This report was written by Canstar’s Editor, Bruce Pitchers. Bruce has three decades’ experience as a journalist and has worked for major media companies in the UK and Australasia, including ACP, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.