Several banks have followed the lead of the Reserve Bank by cutting their home loan rates, giving borrowers an early Christmas gift.
Source: 1 NEWS
The Reserve Bank governor Graeme Wheeler this morning cut the Official Cash Rate by 25 basis points to 2.5 per cent.
Further cuts next year aren't being ruled out either if need be, although the Reserve Bank appears to be signalling that it may have done enough cutting for the time being.
The announcement prompted some Kiwi banks to reduce their floating home rates.
ANZ Bank reduced its floating home rate by 0.25 per cent to 5.74 per cent while The Cooperative Bank has reduced theirs to 5.70 per cent. Kiwibank cut its floating home rate by 0.25 per cent to 5.65 per cent, while BNZ has cut its to 5.79 per cent.
Westpac reduced its floating rates to 5.85 per cent.
Driving this latest OCR cut - the fourth this year - is the persistently low inflation that New Zealand has been experiencing for the last couple of years.
The Reserve Bank has a mandate to keep inflation between 1 and 3 per cent.
However inflation has been below 1 per cent this year and is currently 0.4 per cent.
Mr Wheeler says monetary policy needs to be accommodative to help ensure that future average inflation settles near the middle of the target range.
He says the Reserve Bank expects to achieve this at the current interest rate settings, although the Reserve Bank will reduce rates if circumstances warrant.
As for the economic outlook Mr Wheeler notes the New Zealand economy has softened over 2015 due to lower export earnings and that combined with increases in labour supply from strong net migration, the slowdown has caused spare capacity and unemployment.
He says a recovery in export prices, the recent lift in confidence and increasing domestic demand from the rising population are expected to see growth strengthen over the coming year.
As for the housing market, Mr Wheeler notes house price inflation in Auckland remains high and continues to pose a financial stability risk.
However, he also says there are some early signs that Auckland house price inflation may be moderating.
Residential building is also accelerating and recent tax and loan restriction measures are expected to reduce housing pressures.
Mr Wheeler has flagged a number of risks and uncertainties to today's assessment, including the possibility that dairy prices remain weak for longer and the current El Nino results in drought and weaker output.