The Reserve Bank is expected to cut the Official Cash Rate for a third successive time later this morning.
Reserve Bank Governor Graeme Wheeler Photo: RNZ / Diego Opatowski
Economists are picking the benchmark interest rate will fall from 3 percent to 2.75 percent when it is revealed at 9am today, driven by weaker dairy prices, low inflation and waning business and consumer confidence.
But they are divided over whether Reserve Bank governor Graeme Wheeler will signal further cuts this year, and one mortgage broker says mortgage rates could drop to 60-year lows before the end of the year.
Some analysts think Mr Wheeler will indicate he is prepared to wait to see how a series of cuts affect the economy, before deciding whether further reductions were needed, but others say further signs of a slowing economy will persuade the central bank to lower the cost of borrowing to 2.5 percent in coming months.
For those looking for a home loan, more interest rate cuts are a silver lining, and some banks are already getting ahead of the curve.
Loan Market mortgage adviser Bruce Patten said with one-year fixed rates already as low as 4.35 percent, it was an indication things were not stopping there.
"That to me is just an indication that the rates are probably set to come down even further," he said.
"Probably a quarter of a percent discount this time around, but probably at least another one, if not two more, cuts between now and Christmas. You might see interest rates tip under 4 percent, which will be the first time since pre-1950."
But ANZ chief economist Cameron Bagrie said that was unlikely, and while lower rates sounded good in theory, it was not an idea that should be championed.
He said while the economy is sluggish right now, it was not on its knees, and more cuts would be a bad sign for where things are going.
"The official cash rate needs to drop to sort of 2 percent, which is what you'd need to see for those fixed mortgage rates to drop below 4 percent," he said.
"That will be basically telling us that the New Zealand economy is in recession, and that will not be a pleasant scenario."
Bankers Association chief executive Kirk Hope said competition between banks could be a driver for mortgage rates to keep dropping.
"It's an intensely competitive market, and all banks are looking to pick up good customers and provide them with a full range of financial services, so I imagine that competition will continue."
'House prices are still going up'
Tauranga resident Hiba Al-Tiay is looking to buy her first home in the Bay of Plenty and said she was not holding her breath for lower rates.
"Yeah, of course, if it drops even more it will definitely give hope, but is it dropping for the right people?" she said.
"House prices are still going up, and it's only dropping for the people who can cough up 20 percent deposits."
Ms Al-Tiay said it had been a struggle for her and her husband to get low interest rates, even with the help of family members.
"The mortgage rate that we were getting because we didn't have enough to get the 80 percent lending, was a good 2-3 percent higher than the normal rate, which meant that your repayments were getting to around $800 a week," she said.
"Which is ridiculous, because it's like someone's salary basically going towards repayment."
Savers hit hard
One group that is even less optimistic is savers.
Lower interest rates were good news for property buyers, but it also meant lower savings rates.
Grey Power national president Terry King said it was deeply unsettling for older people.
"It's a disaster for older people, many of whom have, through a lifetime, put together small savings in the hope that when they do retire, those savings can assist towards their superannuation," he said.
"If the OCR drops, that is going to have a dramatic effect."
He said while the well-off could rely on the housing market to shelter their savings, those who could not afford to do so would be feeling left out in the cold.