Economists in New Zealand are beginning to sense a shift in the economic landscape as the country's central bank has recently implemented its first interest rate cut in over four years. This move has sparked optimism among both consumers and businesses, with sentiment surveys reflecting a positive outlook. The Reserve Bank of New Zealand (RBNZ) declared that the cash rate, currently at 5.25 percent, has peaked, with expectations of further decreases, potentially falling below 4.5 percent by mid-next year.

Sharon Zollner, chief economist at ANZ in New Zealand, emphasized the significance of this initial cut, indicating a major regime change in interest rates. The decrease, which came sooner than anticipated, has contributed to a noticeable uplift in economic confidence, as evidenced by recent surveys highlighting increased optimism about future financial conditions. However, economic challenges still linger, as the underlying reasons for the rate cut stem from weaker-than-expected economic performance.

Despite a year marked by rising interest rates, the housing market in New Zealand has recorded different trends compared to Australia. While the latter enjoyed consistent increases in property prices, New Zealand has seen home values decline. Data shows that housing prices are now about 19 percent lower than their peak from November 2021, although forecasts indicate a potential 6 percent rise in values next year following the interest rate reductions.

Furthermore, the changing market conditions have favored first-time home buyers who are currently experiencing a favorable environment characterized by less competition and more options. According to analysts, while investor confidence remains shaky due to unprofitable rental yields, the easing of interest rates may gradually restore their comfort levels in the market.

Zollner noted that if the new rates encourage home purchases or business investments, the overall economic response could be stronger than anticipated. While there are signs of improved consumer confidence, issues like financial hardship and mortgage arrears remain a concern, indicating that further recovery is necessary for many households in New Zealand. Although the number of people in arrears has slightly decreased, the trend of rising financial hardship cases illustrates ongoing challenges in the economy, especially for older consumers more affected by debt stress.