OCR Plan

4 February 2025

Thinkr OCR Forecast

An unexpert expert view             

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Executive summary

To summarise the trajectory of the OCR into the future, it assists to have an over view of past events in respect to the OCR past increases and decreases and using the following timeline to project out as to where a terminal date of the OCR may occur or appear.

OCR Timeline

  Effective 2024        OCR

10 July 2024             5.50

14 August 2024       5.25                      The Past

9 Oct 2924               4.75

27 Nov                      4.25

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Forecast 2025

20 Feb 2025             3.75                  The Present

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The time frame below is the period that fixing a low interest rate may appear early or later.

9 April 2025             3.50

28 May 2025           3.25         The Zone of Action

9 JULY 2025             3.00        Termination Range April – Oct 2025

20 August                2.75

8 Oct                        2.50

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August 2021 being the date of the first OCR increase, with the first decrease being 14 August 2024, a total of 32 months. 2.67 years. Therefore, the recession could last through to August or later in 2025, that being the case the recession this cycle has been 3 years approximately in length. It is unlikely a recession would go for more than 4 years. Therefore, the conclusion that an upturn will be well under way in 2026.The governor of the RBANK NZ has made the plan very clear in his communications.

In recent times there has and is a lot of confusion and mystery about the RSBANKNZ, OCR, Monetary policy and Politics, all four are interrelated and one is wise to understand intercorrelation all four entities to enable a borrower to have more understanding on managing debt and controlling interest cost exposure on debt owed to the bank.

Back in the year 2020 the RBNZ took drastic action and reduced the OCR to 00.25 basis points so avoid the economy going into a deep depression.

This caused retail interest rates to go as low as 2.00% to 3.00% range this in turn created a property boom into late 2021 then Inflation started to trend upwards to peak at 7.30% in June 2022.

This caused retail interest rates to skyrocket and retail interest rates peaked at 7.89%. Some mortgage holders interest costs on debt trebled, causing owners to sell, mortgagee sales and a fall of property values into 2025 and could go lower into 2025.

The resulting factor is that Auckland prices as of February 2025 are down 25% to 27% from peak. Christchurch down 7% from peak. The north island was hit the hardest as price inflation in the north island was extreme. The South Island did not experience the extremes.

This caused many property owners to sell their properties, and the prices of property fell in many parts of NZ. Badly affected areas were the prices escalated the most declined the most in Auckland and to a lesser degree Hamilton, Tauranga and Wellington. The South Island to a lesser degree and price inflation was nowhere as out of control as the north Island.

RSBANK NZ January 2025 Announcement

RSBANK NZ in late Jan 2025 announced that a suitable range for the OCR in the coming months is in the range of 2.50% to 3.50% range going forward from March 2025.

This means we could see the OCR go as low as 2.50% bring interest rates down as low as 3.99% to 4.55% by mid to late 2025. This largely depends on the economy and inflation.

Further forecast into late 2026

Forecasting into late 2026 there is the opinion that the OCR will bottom out mid to late 2025. A low of 2.50% to 3.50% is a possibility, this forecast is dependent on swap rates, the economy and inflation performance. Inflation can and could increase at any time therefore effecting the OCR rate and therefore flow on effects to interest rates at a rapid pace should inflation trend upwards.

Therefore, one must be vigilant on the subject of inflation, as any inflation increase, could cause interest rates, to increase at a rapid pace.

There could be a situation where the OCR reaches a low then a short time later the OCR needs to be increased to contain inflation.

The recommendation is that, if you can secure a low long-term rate below 3.99% one would be wise to look at fixing. One would be wise to keep vigilant as to when the retail rates will bottom out as it may not stay low for long depending on inflation.

The OCR trajectory outlined above, may indicate, the likely date range that a low retail interest rate may appear. There could be a low reached in this date range sooner or later. Inflation could break out, thus causing retail interest rates to increase at a rapid pace to keep inflation under control. Therefore, rate fixing decisions have to reflect the danger of inflation erupting.

Every entity has different circumstances, however securing a long-term low rate does afford stability, security and peace of mind. Therefore, getting the timing right is critical if you are going to secure lower interest costs, stability and peace of mind over time.

·       Obtaining qualified financial advice is critical in making sure one makes the right decision on that day of fixing or refixing any loan.

The Money Printing Machine

The money printing machine has been working flat out since 2009 and to date 2025 11 trillion has been printed this particularly effected the price of assets such as property and caused property to bubble up to a peak in 2021, the stock market is still in a bubble going into Feb 2025 with the Dow reaching over 44,000.00 points Entities should be very aware that we may be entering into an asset correction in 2025.

Summary

In 2012 the governor of the reserve bank stated to the banking committee that he was going to create a recession and has keep to his word the recession started around 2022 and as at Jan 2025 the recession is still in full force that means the recession has been going for 32 months or 2.67 years if it does extend to August 2025 that means near on 3 years or recession. Recessions usually do not last more than four years which means there is the probability of coming out of recession later in 2025 with an upturn occurring into 2026.

Get Ready 2026

Get ready from mid to late 2025 and going into 2026 with 2026 being the buoyant year with the possibility of better times from 2026 onwards.

The Reserve Bank Governor of New Zealand has been totally clear and honest in his communication as to the plan, however some people have not been listing or watching out for business.

Thinkr news will report further on the plan as it comes to hand.

Disclaimer

This article is not financial advice of any other advice it is mainly an opinion and commentary on trending OCR MATTERS as the author see it on behalf of Thinkr Publishing NZ Ltd

Author

Gerald Mullaney

For and on Behalf of

Thinkr Publishing NZ Ltd

think.co.nz

End

4 February 2025