The numbers are in – inflation remains steady at 2.20%, the same as the October figure.
Key contributors to the rise in inflation include rents, council rates, insurance premiums, and airfares. On the other hand, petrol and fruit and vegetables were the biggest downward drivers.
Despite this stability, we’re predicting a 0.50% cut to the Official Cash Rate (OCR) on 19 February, as the economy remains under pressure. This week, we’ve seen minor downward movements in end-user mortgage rates, likely in anticipation of an OCR cut.
Over the Christmas/New Year break, swap rates – the cost of wholesale money banks borrow to fund fixed-rate mortgages – for 1–5-year terms dropped significantly. These drops enabled the modest cuts in mortgage rates. However, last week saw a spike in swap rates, driven by potentially inflationary developments in the United States. This spike eased slightly after President Trump shifted from his inauguration promise of introducing tariffs on imported goods on Day 1 to simply announcing a working group to explore the idea. Perhaps he won’t follow through on everything he says – imagine that!
The “Trump factor” will continue to influence New Zealand’s fixed mortgage rates, making them challenging to predict in the near term.
With a 50-basis-point (0.50%) OCR cut, we don’t expect significant reductions in fixed mortgage rates. A drop of 0.1% to 0.25% is more likely. However, we anticipate the full 0.50% reduction to flow through to floating rates. While the impact on household budgets may be modest, the psychological boost for many will be welcome.
In recent months, most Kiwis have opted for short-term mortgage fixes (6–12 months), which has worked well in a falling-rate environment. However, we believe the time to consider longer-term fixed rates (2–5 years) is approaching. We’re not quite there yet, but it’s something to keep in mind for later this year.
A key indicator will be when swap rates for 2–5-year terms start to rise. That shift would suggest it may soon be cheaper to fix for a short term (6–12 months) than for longer terms, a pattern that is typical in New Zealand.
As always, this is our opinion and does not constitute financial advice. We encourage you to get in touch to discuss your personal situation for tailored advice.
