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OCR Held – Inflation Slowing

Ryan Smuts on how the latest OCR news will affect mortgage rates.

By: Ryan Smuts

31 July 2023

July was an important month for interest rates as the OCR review and inflation data occurred within a week of each other.

For the first time since August 2021, the RBNZ decided to halt increasing the OCR and leave it at 5.50 per cent as they had said they were going to. Hopefully we’ve reached the peak of our interest rate cycle, and the next move to the OCR (eventually) will be a downward one.

The rapidly rising interest rate market which occurred over the last 18-24 months has certainly (along with other factors such as tightening lending criteria) had an effect on property prices which has been felt throughout the country, particularly in areas with higher cost-bases where larger mortgages were taken on to purchase properties.

Inflation Data

On July 19, inflation data came through at 6 per cent. Major bank economists somewhat had a consensus that we’d see this around 5.9 per cent, and the RBNZ expected around 6.1 per cent, so this figure was right in the middle. However, this is still significantly higher than the targeted 1-3 per cent RBNZ mandate.

Sometimes there is confusion around inflation, and people think that because the rate is lower than it was previously that prices are coming down – they are not. What it means is that the CPI is still increasing, however at a slower rate – outside of the RBNZ’s target band.

The next OCR review (and first one following the recent inflation data) will be on August 16, where there is an expectation we’re likely to see the OCR held at its current position. This expectation among most commentators is set for the remainder of the year, and into some of 2024.

Buying Opportunity

While interest rates are high – and borrowing money is difficult – it does represent an opportunity for those who are in the market and are both willing, and able to buy.

If you are looking at taking on a mortgage at the moment, there certainly has been some competition among loan offers/pricing. Some banks are offering more favourable deals than others and in many cases we’re seeing NZ banks with slightly better price offerings over some terms.

Longer-term rates are still higher than short-term rates. In most cases we’re seeing a curve on one to five-year interest rates where the one-year rate is still the highest and the four to five-year rates are the lowest.

This represents the market expectation that rates will eventually drop, so be sure to consider your overall borrowing strategy when fixing in your mortgages, as opposed to simply picking what is the “cheapest” rate on offer on the day – as this may not be the best solution long term.

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