Official cash rate dropped to record low

The Reserve Bank has cut the official cash to the lowest rate ever, dropping it 1.5% after being static on 1.75% for two and a half years. Banks quickly indicated drops in mortgage interest rates.

The dropped had been signalled by the Reserve Bank in March, so wasn’t a surprise, but there have been effects on markets.

RNZ Analysis: What the OCR cut means for you

Even for the informed and interested, the past two-and-a-half years have been exercises in “deja vu all over again” as the RBNZ held its official cash rate steady at 1.75 percent, repeating a mantra of the risks being balanced, with the next move likely to be a rise, probably in a year or two … or three.

But that changed in March when the RBNZ governor Adrian Orr said the risks were now tilted to the downside and the next move was more likely to be a cut.

That made the latest monetary policy statement a live event worth following.

Mr Orr and the RBNZ’s newly established monetary policy committee have delivered a rate cut, that may be followed by another later in the year.

But was a rate cut needed, and more importantly will it work?

Opinion has been divided, with backers of a rate cut saying a slowing economy, cooling housing market, stubbornly low inflation, lower immigration, and a gloomier international outlook justified lower rates to stimulate the economy.

Our economy is relatively healthy so why the change down?

New Zealand is doing better than many economies, with growth around 2.5 percent, consumers are still spending and businesses investing, although perhaps not as freely as before, unemployment is close to a 10-year low, and domestic inflation pressures have been bubbling quietly beneath the surface.

One commentator said before the decision that a rate cut would be like sending out the whole fire brigade to rescue one kitten up a tree.

Immediate effects:

The retail banks have been quick to pass on some of the latest cut with floating and fixed mortgages lowered by a little over a tenth of a percent, while deposit rates have also been reduced, which will hurt those relying on their savings with in the bank.

The New Zealand dollar initially fell three quarters of a cent against the US dollar, before reclaiming much of the lost ground and settling about a quarter of a cent lower.

People with mortgages will be happy that their interest rates remain low or will nudge down a bit more.

Banks have already been criticised for not dropping mortgage rates by the whole .25%, but they may adjust them further as they work out how things look and what their business competitors do.

Leave a comment


  1. David

     /  9th May 2019

    Orr probably looked at Kiwibuild and thought there is no way house prices will rise what with Twyfords huge pipeline of houses so was on pretty safe ground.

    • Ray

       /  9th May 2019

      Beginning to think I may as well spend the money in my savings account, presently locked at 4% and that is better than the official inflation rate but if you think that the price of what you intend to buy will go up faster than that, or what you are getting, get out and buy!

      • David

         /  9th May 2019

        I manage a family trust for an older relative and we have had a great 9 year run with a combination of listed property trusts, corporate bonds and some good NZ listed companies. We use a stockbroker at Forsyth Barr who has been great, we avoided financial planners who we dont rate at all and went for a stockbroker as they have no ties to particular products and just pay a flat fee.

        • Kitty Catkin

           /  9th May 2019

          I wish that interest paid to people was less stingy.

  2. David

     /  9th May 2019

    Its such a relief to finally have a governor who is not always looking for a reason to raise rates. NZ has had incredibly high interest rates and for no good reason, Brash slayed inflation decades ago and excepting the fiscal profligacy of Cullen exasperating price pressures we have had little inflation since.
    Orr is a smart operator he is still tight in terms of very very tough restrictions on borrowing percentages and getting tougher on capital adequacy ratios beyond anything seen globally but is compensating with lower rates and therefore keeping the economy ticking along for the productive sector.
    Breath of fresh air after Brash and that appalling guy English appointed and re appointed.

    • Duker

       /  9th May 2019

      ” Cullen exasperating price pressures we have had little inflation since.”
      Thats because it was other factors , as Key and English borrowed far more than Clark/Cullen did and we arent talking 20% more , its more like 400% more leaving a gross debt of $80 bill plus from inheriting under $20 bill gross debt.
      Whats your definition of prolificacy and yet you claim some financial prowess..hahahaha

      Oh and Cullen left money in the kitty with the Cullen fund which he put $7 bill into and now worth $35bill and has paid $7 bill in tax.
      What nest eggs have English left for the taxpayers? ( not a surplus as on a cash basis they borrowed every year including the last 3)


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: