New Inflation Data Signals Potential Shift in Mortgage Rates

New Zealand's latest inflation data has sparked renewed speculation about the future of mortgage rates, as central bankers and economists debate whether further rate cuts are on the horizon.

According to the most recent figures, inflation rose to 2.7% in the second quarter, the highest level in a year. While this may seem relatively low compared to previous peaks, the impact on everyday households—especially those grappling with rising property taxes and rental costs—remains significant.

Despite the inflation rate dipping below some economists' predictions, the data has not been enough to sway the Reserve Bank of New Zealand (RBNZ) from its current trajectory. Market analysts are now more confident than ever that the RBNZ will continue its policy of easing monetary conditions, with some even suggesting the rate cuts may come sooner than expected.

ANZ senior economist Miles Workman noted that the inflation data does not pose a major obstacle to further rate reductions. In fact, he believes that the RBNZ may accelerate its easing policy, with potential rate cuts in August, November, and early next year. “The data shows that the long-awaited easing may come earlier than anticipated,” he said.

However, not all economists are in agreement. Infometrics chief forecaster Gareth Kiernan believes the RBNZ will maintain the official cash rate (OCR) at 3% for now, citing signs that inflationary pressures are more localized rather than widespread. “The data supports a moderate easing, but not a large one,” he remarked.

Meanwhile, Kiwibank economists argue that the OCR should be cut to 2.5% to help ease the strain on the labor market and other parts of the economy. Westpac, on the other hand, expects a 25 basis point cut in August but will remain watchful of core inflation indicators.

ASB economists predict a 25 basis point cut in August, bringing the OCR down to 3%, but they caution that inflation could still move in either direction. “If inflation remains stubbornly high, the OCR may stay at 3.25%, but if the economy continues to weaken, we may see it fall below 3%,” they said.

With the upcoming labor market data expected in early August, the path forward for the RBNZ—and by extension, mortgage rates—remains closely watched by both investors and homebuyers alike.

Keywords: inflation, mortgage rates, RBNZ, interest rates, New Zealand economy