Inflation figures released today have led to increased expectations that New Zealand’s Reserve Bank will cut interest rates again. Annual inflation has now fallen to 3 percent, back inside the government’s target band, and is expected to go much lower.

In the last few months, New Zealand’s central bank has slashed the official cash rate from 8.25 percent to a record low of 3 percent.

New Zealand’s Official Cash Rate

Mortage rates have also fallen, although Reserve Bank head, Alan Bollard, has complained they haven’t fallen enough. “If this apparent distortion persists,” he says, “it could put unnecessary pressure on the cost of borrowing by firms and households.”

Average Mortgage Rates in New Zealand

If the Reserve Bank trims rates to 2.5 percent at its next meeting, as many financial experts believe it will, Dr. Bollard and the country’s homeowners are expecting to see New Zealanders’ cost of borrowing, in the form of mortgage rates, receive the full benefit of the headline cut.