Following the Reserve Bank of New Zealand’s (RBNZ) 12 July review, the Official Cash Rate (OCR) was unchanged for the second review in a row. This has reaffirmed the RBNZ sentiment that the OCR has peaked, after increasing by 525 bps from its low of 0.25% since October 2021 to 5.50%. However, there remains some divergence from market commentators on the matter, with some expecting another 25 bps of hikes to manage the high inflation environment we are experiencing.

Based on the more popular view that interest rates have peaked, the focus will shift to when the RBNZ should start easing interest rates. The consensus is that it will not happen until mid-2024.

Figure 1: RBNZ OCR forecast and 90-day chart

Source: RBNZ

As of 30 April 2023, 22.8% (NZD$79.3 billion) of residential mortgages are floating or fixed for less than three months, with a further 37.9% (NZD$131.8 billion) maturing within the next 3-12 months. That’s NZD$211.1 billion floating or maturing within 12 months. This has seen commentary suggesting as mortgages re-price onto higher interest rates over the next 12 months, we would see average household debt servicing around 10% of disposable incomes - levels last seen in 2011.

The funding and higher interest rate environment is expected to keep a lid on property prices, and in some cases, there will be further softening.