Bob Edlin: The OCR is trimmed and Govt politicians are cheered....

The OCR is trimmed and Govt politicians are cheered – but savers won’t necessarily be whooping

PoO first heard the news from RNZ: the Reserve Bank had cut the official cash rate to its lowest level in three years – by 25 basis points to 2.25 per cent – to support economic recovery.

That led us to check the announcement on the RBNZ website. This expressed confidence that inflation would ease from where it now sits, at the top of the 1 – 3 per cent target band for monetary policy:

Annual consumers price inflation increased to 3 percent in the September quarter. However, with spare capacity in the economy, inflation is expected to fall to around 2 percent by mid-2026.

There was a heartening outlook on the GDP front, too, for a government hellbent on generating growth, growth, growth…

Economic activity was weak over mid-2025 but is picking up. Lower interest rates are encouraging household spending, and the labour market is stabilising. The exchange rate has fallen, supporting exporters’ incomes.

But the RBNZ was taking a bet each way on where we are headed:

Risks to the inflation outlook are balanced. Greater caution on the part of households and businesses could slow the pace of New Zealand’s economic recovery. Alternatively, the recovery could be faster and stronger than expected if domestic demand proves more responsive to lower interest rates.

Having dispensed with the economic forces at work on shaping the short-term future, the statement got to the news that mattered:

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.

We didn’t have to wait long for the reaction from the politicians.

A statement from Labour was headed …

The Reserve Bank is propping up a stalling economy while Christopher Luxon sits on his hands.

“Cuts to interest rates are welcome news for mortgage holders, but rate cuts signal a stalling economy. That’s not bragging material for any Government,” Labour finance and economy spokesperson Barbara Edmonds said.

A stalling economy?

Obviously she disagreed with the boffins at the Reserve Bank who had just said economic activity was weak over mid-2025 but is picking up.

But the PoO team (who cherish their Gold Cards and keep an eye on their savings) was more disappointed by the whoop from ACT’s David Seymour.

“Another cut to the official cash rate means more money in the pocket for households, but let’s not take it for granted,” says ACT Leader David Seymour.”

Some households. Not all.

Savers generally do not benefit from a lower Official Cash Rate (OCR), because it typically leads to lower interest rates on savings accounts and term deposits.

Borrowers can expect cheaper loans, but savers should brace for reduced returns on their cash.

Finance Minister Nicola Willis perhaps recognised that not all households will benefit. She said:

“For many households, lower interest rates mean more choice.

“Reserve Bank data shows that 80 per cent of mortgage lending has come up for renewal since the bank began reducing the OCR in August last year.

“That means more money in Kiwi pockets. In addition, thousands of Kiwis are taking the opportunity presented by lower rates to buy their first homes.

“In the 12 months to September, 23,600 households bought their first home, the most since 2021.”

Fair to say, while direct returns on traditional savings decrease, there are some potential indirect benefits for savers.

With lower returns on cash, savers may be prompted to diversify their portfolios into other assets like managed funds or shares. These options carry more risk but have the potential for higher long-term growth that can outpace inflation.

Managed funds, which are often Portfolio Investment Entities (PIEs), can also offer tax advantages.

Increased economic activity spurred by a lower OCR can lead to rising asset prices, such as shares and property, which could increase the wealth of savers who hold these assets.

But David Seymour – we suspect – was so keen to be heard on the subject of a lower OCR and government spending that he didn’t pause to think about the implications for older citizens.

He said mortgage rates are down because inflation is under control. And inflation is under control because this Government has, for two years, applied some basic discipline to its spending.

“We started with inflation at 5.6 per cent, the OCR at 5.5, and mortgage rates above seven. Since then, ACT has led the effort to turn things around, cutting wasteful spending, negotiating down the price of our coalition partners’ policies, and pushing back on proposals to borrow and bribe.

“For now, we’ve broken the spending addiction, but an election year risks sending us into a relapse.

“The parties that borrowed $115 billion and left us with nothing but inflation will try to bribe their way back into government. Their whole election strategy hinges on voters having short memories.

“When Labour and the Greens make spending promises, that puts pressure on other parties to offer expensive goodies of their own. And every debt-funded spending promise is a promise to put hard-won relief at risk.

“ACT, however, will hold the line. Our basic view is that government should be as responsible with taxpayer money as the households paying the bills are.

“If we want to keep mortgage rates and prices down, we must spend wisely.”

Now let’s hear from Taxpayers’ Union spokesman James Ross on the issue of government spending,

The OCR cut isn’t enough on its own, he said.

Taxpayers’ Union–Curia polling last month found 58 percent of New Zealanders want Nicola Willis to cut low-priority spending, with just 11 percent opposed. Yet Government spending as a share of the economy is still higher than when Grant Robertson left office. Overspending is keeping inflation sticky and stopping the deeper OCR cuts needed to get the economy moving again.

“We’re now seeing the effects of high spending, weak growth, and inflationary pressure piling on top of each other.”

If the Minister of Finance wants to relieve the pressure, Ross advised, she needs to do what she was elected to do and start cutting the waste.

Or try harder to apply some basic discipline to its spending, to use Seymour’s language.

Bob Edlin is a veteran journalist and editor for the Point of Order blog HERE. - where this article was sourced.