With the first pause in OCR reductions in over 12 months, it appears we’re nearing the bottom of the interest rate cycle. The Reserve Bank’s projections suggest there may be up to two further reductions—one anticipated this year, and potentially another either later this year or early next year.
As we’ve seen recently, these expectations have already been largely priced in, meaning any future OCR cuts will likely be passed on in modest increments—approximately 10 to 15 basis points per reduction.
We’re now operating at the fringes, and seeing a “4” in the rate is a welcome sight. It’s been a smooth descent over the past year, with the one-year fixed rate dropping from a peak of 7.49% to today’s low of 4.79%.
Many borrowers opted for shorter-term strategies, and with 81% of all mortgages maturing within a 12-month period, we’re about halfway through that cycle.
So, what now? A fair question. Those who’ve worked with me over the years will know I’ve long advocated for the “eye on the ball” strategy—rolling over on 12-month terms. While this approach still has merit, there’s now growing appeal in a split strategy. Fixed terms from one to three years each offer advantages, and the 18-month option currently stands out as the most cost-effective at 4.79%.
Sometimes, simply choosing the most competitive rate is the best move—particularly given the uncertainty ahead. The big unknown is: how long will that 4.79% rate remain available?
In my view, economic recovery will be gradual. We’ve endured a deep recession, and while rates should remain relatively low for the foreseeable future, we can expect some fluctuation depending on inflation trends. The agricultural sector is showing pockets of strength, but many industries and businesses are still navigating difficult conditions, which should help keep inflation in check.
— Tony Mounce, Managing Director