Cheap Money, Dear Housing: New Zealand’s OCR Problem

The Reserve Bank of New Zealand (RBNZ) has delivered the widely expected 25-basis-point cut, taking the Official Cash Rate (OCR) from 2.50% to 2.25% and cementing New Zealand as a clear outlier among its major trading partners. While markets focused on the fact the move was fully priced in, the deeper story is that New Zealand is now running interest rates below both inflation at home and policy rates abroad - a combination that weakens the currency, punishes savers, and once again channels cheap money into an already overheated housing market.

New Zealand at the Bottom of the Rates League
Before Wednesday's decision, New Zealand's OCR was already well under the policy settings in the United States and Australia. The cut stretches that gap even further and leaves New Zealand at the bottom of the rates league among its key trading partners.

• New Zealand OCR: now 2.25%
• United States Fed funds: 3.75% - 4.00% after the Fed's October move
• Australia RBA cash rate: 3.60%, on hold at the November meeting

In other words, New Zealand's so-called risk free rate now sits more than a full percentage point under the Fed and well below the RBA. That is unusual for a small, externally funded economy that relies heavily on foreign capital and a stable currency, and it makes holding New Zealand-dollar assets less attractive relative to US or Australian assets.

Layered on top of that is inflation. Annual CPI is running at around 3%, while the OCR is now 2.25%. After inflation, the real policy rate is negative: money parked in New Zealand-dollar cash or short-term deposits is losing value in real terms, meaning savers and wage earners are effectively diluted while borrowers and asset owners are subsidised.

A Weak Currency Meets Negative Real Rates
Yesterday's article highlighted how soft the New Zealand dollar already looked going into this decision. Against both the US and Australian dollars, the NZD has been trading near the weaker end of its post-GFC ranges.

• NZD/USD has been hovering in the mid 0.56 area, with a recent low around 0.5585.
• NZD/AUD has been sitting near 0.87, meaning roughly 1 AUD ≈ 1.15 NZD, one of the softer readings of 2025.

Those levels reflect an economy that has been in easing mode while its peers hesitate. With the OCR now pushed even further below US and Australian rates - and below domestic inflation - New Zealand is effectively telling global investors: we will pay you less to hold our currency than our competitors will, and less than inflation at home.

That mix is hardly a recipe for a strong, stable NZD. A weaker currency does help exporters on paper, but it also imports inflation back into the system via more expensive fuel, food, and tradable goods. For households who are already squeezed, a cheaper dollar plus negative real interest rates is a double hit: everyday prices drift higher while the value of their savings erodes.

Cheap Money and the Housing Market - Again
The most troubling part of this setup is where ultra-low, negative real rates tend to show up first: the housing market. New Zealand enters this easing phase with house prices already among the most stretched in the developed world relative to incomes and rents.

First-home buyers face huge deposit hurdles, and renters are paying a large share of their income just to keep a roof over their heads. In that context, pushing the OCR down to 2.25% - below inflation and below trading-partner rates - looks less like supporting the real economy and more like re-inflating the very asset market that caused so much damage last time.

We have seen this playbook before. During the pandemic era, the RBNZ rolled out its Funding for Lending Programme (FLP), providing banks with cheap, long-term funding at or near the OCR to drag retail borrowing costs even lower. Bank funding costs fell, mortgage rates dropped further, and a wave of extra liquidity poured into residential property, helping to drive an already hot housing market into a full-blown boom.

The current move is different in form - it is a conventional OCR cut rather than a special facility - but similar in effect. By driving the policy rate well below inflation and peer central banks, the RBNZ is once again making it cheaper to leverage into property than to hold safe savings, which is good news for existing landlords and multiple-property owners and terrible news for aspiring buyers and renters.

Savers, Workers and Renters on the Wrong Side of the Trade
Running an OCR below inflation and below foreign rates is not a neutral choice. It redistributes wealth and risk in very specific ways across the economy.

• From savers to borrowers: Term-deposit and cash returns sit below the rise in prices, so anyone holding NZD savings is going backwards in real terms.
• From wage earners to asset owners: Negative real rates support higher asset prices - especially property - while wages adjust more slowly, widening the gap between those who already own leveraged assets and those trying to catch up.
• From young to old, and from renters to landlords: Younger households and renters, who typically have fewer assets and more cash exposure, bear the brunt of higher living costs and an ever more distant path to ownership.

In theory, monetary easing is meant to stimulate business investment, hiring, and productive activity. In practice, New Zealand's experience over the last decade suggests that cheaper money has been far more potent in inflating land and house prices than in transforming the productive base of the economy, and with the OCR deeply accommodative again, the pattern looks set to repeat.

What the RBNZ Says About Its Decision
In its statement, the Reserve Bank offers only a guarded line on what comes next: "The Committee voted to reduce the OCR by 25 basis points to 2.25 percent. Future moves in the OCR will depend on how the outlook for medium-term inflation and the economy evolve."

Those are cautious, technocratic words, but the policy reality underneath them is clear. New Zealand has chosen to run one of the lowest policy rates in its peer group at a time when inflation is still above the 2% midpoint and housing affordability is already a national crisis, and the combination of a negative real OCR, a structurally weak currency, and a housing market still priced for perfection is a high-risk bet that short-term stimulus is worth the long-term cost.