Last week the government announced that inflation had fallen to 3.3 per cent for the 12 months to June – a 3 year low, and down from 4 per cent in the previous quarter. This drop was more than the 3.6 per cent the Reserve Bank had been expecting and just above their target rate of 1 to 3 percent.
The announcement was welcome news for the team at Irelands and in particular for their property investors – why?
While the official cash rate (OCR) hasn’t changed, it’s still sitting at 5.5 per cent for the eighth consecutive meeting, this lower than expected inflation rate points towards the Reserve Bank bringing forward a cut in the OCR sooner than expected. Recent updates this week from the main banks back this up, with ANZ saying the inflation data has prompted it to pull forward its expectation for an OCR cut to November 2024, not February 2025 as it had previously forecast, and ASB saying the data tilted towards larger and earlier cuts. Westpac has also bought forward its forecast to a November OCR cut and Kiwibank has said interest rate relief is on its way. All of this means that lower interest rates could finally be with us before the end of the year, which is good news for property investors who have mortgages on their rental properties.
In fact, when you look at the major banks’ interest rates a little more closely, we may already be starting to see some of these downward changes in interest rates coming into effect, for example:
Firstly, while they are still sitting in the high 6’s for a 1 year fixed rate (ANZ, ASB, BNZ, Kiwibank and Westpac all currently have the same 1 year fixed mortgage rate of 6.85 per cent at the time of writing) the good news is that only a week ago, before the new inflation data was released, they were all sitting at above 7 per cent!
And secondly, this is actually the fourth time that Westpac has dropped it’s 1 year interest rate this year (it dropped it in February, May, June and July, so in fact every month for the last three months). If you compare this to the last part of 2023, when they increased the rate three times, it shows the direction of travel of interest rates is definitely on the way down.
So, while the job of crushing inflation is not completely there yet and we’re not likely to see any dramatic overnight interest rate drops anytime soon, the team at Irelands are confident we are at least heading in the right direction for some ‘rate relief’ by the end of 2024. This confidence has been reflected in the recent increase in interest from investors wanting to know about purchasing rental properties in Christchurch – something our existing property investors already know to be a good thing!
For more information, the property management team at Irelands are always available to answer any questions you may have, or alternatively you can find out more information at:
https://www.rnz.co.nz/news/business/522381/what-inflation-data-means-for-interest-rates-and-mortgages
Or https://www.rbnz.govt.nz/monetary-policy/about-monetary-policy/inflation
Or any of the major New Zealand banks’ websites – economists’ commentary and insights.