As New Zealand's mortgage landscape evolves, recent shifts in US interest rate expectations are significantly impacting local financial conditions. A report from the New Zealand Institute of Economic Research (NZIER) indicates that New Zealand's mortgage book is currently the shortest it has been in 13 years, with a staggering 81% of borrowings set to be repriced within the next 12 months. This trend is reflective of the broader economic climate, where the US Federal Reserve is anticipated to cut rates by 25 basis points in 2025, contributing to a stabilizing inflation rate in the US at around 2%-3%. Meanwhile, the New Zealand dollar recently hit a 15½ year low against the US dollar, trading at 0.5550, which adds further pressure on local borrowers. The Consumer Price Index (CPI) inflation forecast for the first quarter of 2025 stands at 2.5%, leading analysts to predict that the Reserve Bank of New Zealand will likely reduce the cash rate to 3.75% in February. Notably, 47% of new mortgage lending in November was on floating terms, highlighting a growing preference for short-term borrowing despite the potential risks associated with such strategies. Mike Jones, Chief Economist at BNZ, emphasizes the importance of understanding these dynamics as they unfold in the coming year. [9d7b4dd9]
In light of these developments, Kiwibank has recently announced a reduction in its fixed home loan rates, now offering a one-year fixed rate of 6.29%, which is competitive with ANZ's rates. The reductions, ranging from 4 to 20 basis points, reflect the easing inflation trends and the anticipated moves by central banks to lower benchmark rates. Kiwibank has also adjusted its deposit rates downwards by 10 to 30 basis points. Analysts are closely monitoring the situation, with predictions suggesting that the Official Cash Rate in New Zealand could be reduced by 87 basis points to 4.35% by the end of the year. However, ASB senior economist Kim Mundy has expressed caution regarding the prevailing optimism about these potential rate cuts. [7dda908d]