Some economists says the decision was driven by a desire to deliver "shock therapy" to consumer confidence. Photo: 123rf
The Reserve Bank has cut the official cash rate by 50 basis points, but what will that actually mean for households?
Here are a few ways you might notice the effect.
Interest rates
Home loan rates should fall a bit further, particularly for the shorter fixed terms.
Infometrics chief forecaster Gareth Kiernan said markets had priced in about a 50 percent chance of a 50 basis point cut. He said rates could get down to 4.2 percent or 4.3 percent after Wednesday's decision.
Kiwibank chief economist Jarrod Kerr said interest rates were getting to a level that made a difference to households.
"A 7.5 percent mortgage rate really hurt most households with debt," he said.
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"We're down into the high four percents and we'll be into the low fours soon enough. If they cut to 2.25 percent, we'll be into the really low fours, possibly high threes, depending on how things go.
"The market is starting to flirt with the idea of a two percent cash rate."
The Reserve Bank has left its options open for the next review, not ruling out a 25bp or 50bp cut, or the potential to keep the rate on hold.
BNZ chief economist Mike Jones said floating rates should move quickly.
"Fixed rates have been coming down in anticipation, so that'll limit how much of a reaction we see," he said. "Based on what we've seen in the markets and wholesale interest rates, I think there's room over the next wee while to see those shorter-term fixed rates come down a bit more.
"Generally speaking, you don't cut by 50bps and then stop, so I think the market is paying heed to that and we're seeing those wholesale interest rates drop."
Economic activity
Jones said the decision was driven by a desire to deliver some "shock therapy" to consumer confidence.
"I think what carried the decision was an attempt to break the doom loop that the New Zealand economy has been in and just jolt consumers out to start spending again."
He said people had been reluctant to resume spending, despite the cuts so far.
"The spending that they're doing has generally been on paying the bills, rather than the discretionary stuff.
"[The decision means] cash in hand - certainly from lower-than-otherwise interest rates, but perhaps even more - so it's just a circuit breaker, hopefully, for the doom loop."
Kerr said households were unlikely to start "running around spraying money on expensive clothing", but the lower interest rates should generally help people feel better.
Where the OCR had not previously been low enough to stimulate the economy, he said, it now was.
"If they go to 2.25 percent, fantastic. If they go to two percent, excellent, because we are in a hole that we're struggling to dig ourselves out of and we need this leg up. The Reserve Bank has finally relented and realised they ware well behind the eight ball."
Kiernan said increased confidence should lead to better economic outcomes.
"On the consumer side, in particular, they are looking to stimulate more spending and try to get the economy going.
"I think, if you watch things over the next three months, if you get that effect in terms of retail interest rates coming through, as well as maybe a bit more sign that the labour market is starting to turn around and improve… I think there will still be an air of caution, but this means you are looking at below average interest rates pretty much throughout 2026 now and an ability to lock in rates south of 4.5 percent… which does secure your financial position pretty well for the next 24 months or so, if you keep your job."
Exchange rate
The New Zealand dollar has been under pressure lately and the cut will likely mean it remains weaker.
"We're cutting faster than overseas, so that is going to weigh on the exchange rate," Kiernan said. "It will probably get a floor under it to start to potentially improve a bit, when we reach the bottom of the interest rate cycle… but at the moment, it's more expensive, if you want to go overseas or buy things on Temu."
ANZ strategist David Croy said markets would likely be very sensitive to the potential of another cut to come.
"Recent falls in the Kiwi have been fuelled by falling terminal OCR expectations."
He said, if the market priced in a November cut of 50 basis points, the Kiwi could easily break below September's 0.5754 low.
House prices
Kelvin Davidson, chief economist at property data firm Cotality, said the immediate direct impact on the housing market would not likely be big.
"After all, the banks had already been cutting their mortgage rates in advance, particularly for one-year fixed loans," he said.
"Although the effects of this will progressively flow through to borrowers in the coming weeks and months, the subdued labour market is the key restraint on the other side of the equation at present - and it will be slower to start improving - maybe not until next year."
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