The economy should be gradually strengthening over the coming quarters, according to Westpac's latest report. Photo: RNZ
New Zealand households could be in line for one of the biggest falls in debt servicing costs in the past 30 years as the Reserve Bank cuts interest rates, says Westpac NZ.
The bank's latest economic overview shows the economy gradually strengthening over the coming quarters, supported by cheaper borrowing costs due to the Reserve Bank's rate cuts, as well as strong export prices.
"To put the fall in mortgage interest costs in context, if you have an average mortgage of around $380,000, the 217 basis point drop in the one-year mortgage rate over the past year could reduce your minimum monthly mortgage payments by around $400," chief economist Kelly Eckhold said.
He said that was about 4 percent of an average borrower's disposable income.
"This is one of the largest falls in household debt servicing costs seen in the past 30 years," Eckhold said.
Westpac has pencilled in two more 25 basis point cuts to the Reserve Bank's Official Cash Rate to a low of 3 percent in the September quarter.
But it said while households faced easing interest rates, the job market would remain a challenge for some time.
"Given ongoing growth in the labour force, the unemployment rate is expected to edge higher to a peak of around 5.3 percent this year, before beginning to trend down next year as the economic recovery gathers steam and hiring picks up," Eckhold said.
Westpac retained a positive outlook overall for the economy, with gross domestic product (GDP) likely to have increased in the first quarter and activity expected to improve as household disposable income rose due to lower interest rates.
"Together with a lift in export volumes - including a further recovery in tourist arrivals - annual GDP growth should strengthen to 2.7 percent this year and around 2.8 percent in 2026," Eckhold said.
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