OCR cut: Deputy leaders at odds over NZ's economic prospects

Key points:

Deputy leaders of the National Party and the Labour Party are at odds about where the economy is heading.

Yesterday, the Reserve Bank announced the official cash rate will be cut to 5.25% — the first reduction in four years.

National Party deputy leader and Finance Minister Nicola Willis said the Reserve Bank's decision to lower the OCR meant it must believe "inflation is under control" and the economy was "on track".

Labour Party deputy leader Carmel Sepuloni said there was both "good and bad news" about the economy, and pointed out employment was "going up" and "forecast to get worse".

"Of course [the OCR decision] provides some reprieve to families, and particularly with things like interest rates, this will be good news," said Sepuloni.

"The economy is still not going as well as what we thought it would. Unemployment is still going up and now its forecast to get even worse.

"We're going to see thousands of New Zealanders lose their jobs, and we're still not sure what the inflationary impact of the tax cuts will be."

In response, Willis said: "It is still tough times for many people, we're very conscious of that, so we've got to get on and do our job of rebuilding the economy.

"We're really concerned about any New Zealander who loses a job and is ready to work. Ultimately, what we need is businesses feeling confident about the future so they want to hire more people.

"The number one thing that businesses say to me right now is 'we've got to see interest rates coming down', so yesterday's news is really important for that."

Willis added the Reserve Bank was predicting growth would "come right back up" next year, which was important because "it is with growth, we get more jobs for New Zealanders".

Last month, the Government implemented tax cuts, with exact numbers depending on both individual's income and circumstances.

Sepuloni said tax cuts would "mean nothing" to the tens of thousands of New Zealanders "that lose jobs".

"We are really concerned. [Unemployment] has already gone from 4% to 4.6%, now it's predicted to go to 5.4%.

"It's the same group of New Zealanders that are already impacted. Already high unemployment rates for Māori, Pacific, for young people. So we are watching this space very nervously."

Meanwhile, Willis said 3.5 million New Zealanders would benefit from the tax cuts.

"I have spoken to many of them over the past fortnight, who say that extra $20, $40, more than $100 in some families' cases, will make a difference to them. I think it is a bit mean to not want them to have that relief right now after three years of a cost of living crisis."

The reduction to the official cash rate is likely to have a positive impact for home owners, business and consumers, according to Ray White chief economist Nerida Conisbee.

"The housing market ... it has been very challenging. We've seen a significant price decline since the end of the pandemic, a lot to do with, of course, rapidly rising rates.

"It is likely we will start to see a pick up in pricing, it is likely we are now at the bottom. If you have a look at somewhere like Auckland at the moment prices have dropped by something like 2% over the past 12 months."

She said banks "should" make quick changes as a result of the OCR adjustment, and added if a bank is not cutting rates it is a "good time to start to look around", particularly "given it is likely we will continue to see rate cuts".

She also said the change is great for both businesses and consumers.

"We tend to think of the OCR, and we think of people with home loans and consumers, but obviously business have also been struggling with higher interest rates ... government too, I mean government debt is a big issue globally and higher interest rates does make it far more expensive so interest rates for them will also reduce."

She said a continued increase in unemployment would be "worrying", but it will be good news too if it meant businesses could hire more people due to the OCR change.

On whether the OCR could come down again, Conisbee said the inflation rate was at 3.3% and "trending downwards" and the OCR was "pretty high" from a global perspective.

"New Zealand is in great company, if you have a look around the world ... we are seeing some of the biggest economies starting to cut now.

"Globally... it is a pretty consistent theme of rates are coming down, and it is quite possible they will come down quite quickly."

Both agreed the OCR cut would be a reprieve for families under mortgage pressure, and this was reiterated in a statement from Leigh Hodgetts, country manager of the Finance and Mortgage Advisers Association, this morning.

“Yesterday’s interest rate cut is a welcome relief to mortgage holders. While it is a small decrease, it will help borrowers who have been doing it tough over the past couple of years as rates have increased," Hodgetts said.

"The decision will bring some confidence back to Kiwis, as it means things are heading in the right direction.

"We are keen to see another two decreases this year in October and November."

Hodgetts said the association was calling on the banks to pass on the entire rate cut to borrowers.

"And to do it immediately."