Another OCR cut justified as households, businesses struggle
RNZ
The Reserve Bank is expected to put a pause on its series of cuts to the Official Cash Rate today.
The OCR's been progressively reduced for almost a year from 5.5 percent to the 3.25 percent it's sitting on now.
However, economists and financial markets are banking on it staying where it is when the decision is announced on Wednesday.
Jarrod Kerr
Photo:
Supplied / Gino Demeer
Kiwibank chief economist Jarrod Kerr said it appeared the Reserve Bank wanted "to slow down and have a look around" so he believed there would be a pause on Wednesday and then another cut in August.
"They've delivered quite a few rate cuts already and they want to see that feeding into the economy and how that's influencing households' spending behaviour and businesses and they want to see what's happening with inflation."
There had been a spike in inflation recently, particularly with regard to food prices, Kerr said.
He believed an OCR cut would be justified this week because both households and businesses were struggling.
Households needed more help with the cost of living crisis while businesses were also finding it tough, with a sharp rise in receiverships and liquidations recently.
"It's still very tough out there. We're still crawling out of the bad recession that we had last year so I think the economy needs a bit more support.
"We need to be running, not crawling out of this recession."
There was a weakening in the labour market at present and this would have an impact on lowering inflation, Kerr said.
Rents have been softening and were now increasing at a rate of around 2.5 percent rather than the 4.4 percent increases during a time of high migration in 2023.
However, this was being offset by increases in other areas such as food prices and insurance premiums.
For those refixing their mortgages in the next few months, Kerr advised that interest rates would go a little lower "but not a lot".
He also advised people to split up their home loan so it wasn't all on one rate.
Realestate.co.nz chief executive Sarah Wood said homeowners would like to see another drop in the OCR so they could pay lower interest on their mortgages.
She said a large number of homes were for sale, for instance, in April 36,000 properties were on the market.
The number has since fallen to 32,000.
"Interest rates will obviously have an effect on that."
When the OCR came down, it helped encourage buyers into the market, including investors and first home buyers.
While properties were selling at present, the market was not at the kind of peak it was in during the pandemic, Wood said.
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