The RBNZ kept the Official Cash Rate steady last week, so what does that mean for key drivers of the New Zealand economy? Milford Investment Analyst Jeremy Hutton talks with Ryan Bridge about contributing factors such as housing, tourism and migration, and discusses the NZX market performance outlook.

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Bridge talks Business: 15 July 2025
Episode Transcript

Ryan Bridge
Kia ora and welcome to Episode 41 of Bridge talks Business with Milford. Mortgage holders missed out on a rate cut in the latest RBNZ monetary policy review. That’s despite quarter two growth looking a bit shaky. In today’s episode, how low will the OCR go given economic conditions? And how does the Reserve Bank balance inflation potentially creeping into the upper end of its target range, with an economy which clearly needs a good kick up the backside in the form of further rate cuts. Milford’s Jeremy Hutton is our man in the hot seat for this today.

But first, here’s your top five business bits.

1. Tariffs! Trump gets tough again after weeks of walk backs. He’s taking aim at the EU, Canada, Mexico and others. The implementation date of the 1st of August is now only a few short weeks away.
2. Tariffs again! Investors have grown weary of trading tariff headlines, and the announcements were met with muted market reactions. Unless they are walked back, these tariffs are likely to inflict meaningful damage on the US economy, boosting inflation and hurting growth.
3. The RBA across the Tasman surprised investors last week by holding rates steady. They had expected a cut and the move sparked a rally in the Aussie dollar vs the Kiwi, and also a fall in Australian bonds.
4. Here, the RBNZ held the rate steady as expected by investors. We’ll have more on this with Jeremy in just a second.
5. And finally, this week we will get key inflation data out of the US where investors are looking for evidence that those tariffs are feeding through to shelf prices that consumers are paying. We also see the start of the quarterly reporting season for global companies.

Right, it is time to get down to business. This week we’re looking back. We’re looking forward. It’s OCR. It’s the economy. It’s when are we getting out of this slump? Joining me today is Jeremy Hutton, an Investment Analyst at Milford. Just a reminder, this segment is informational only and should not be considered financial advice. Jeremy, welcome back to the podcast.

Jeremy Hutton
Thanks, Ryan. Thanks for having me.

Ryan Bridge
Good to have you here. So obviously there was no movement in the OCR last week. We had the monetary policy statement from the Reserve Bank. What did you make of what they said around the no movement?

Jeremy Hutton
Yeah. So a fairly admirable dovish hold in my view from the Reserve Bank. And they kept the OCR flat at 3.25%. But I think the key surprise was just a bit more willingness to try and ease interest rates as we go through the rest of this year. And the market has picked that up, they’re pencilling another cut, in August, a 3%. And then also potentially another cut later this year. So, I think the economy needs it. A little bit more of a boost in the monetary policy sense. Policy is still restrictive at the moment. The neutral rate is seen at 3%. So getting it under that 3%, I think is what’s needed for the economy just to give it that boost up, as we go through the rest of this year.

Ryan Bridge
Because we’ve got inflation running at about 2.5%, but potentially going to creep up to the higher end of that band. What’s GDP doing? And we’ve got a Quarter One data obviously, but Quarter Two -how’s she looking?

Jeremy Hutton
Yeah. So the GDP numbers were strong in Q1. We were at that 0.8%, which was a surprise to the up side. But I think some of the high frequency data that we’ve been getting through Q2 and into Q3 has been a little bit weak. Even the Reserve Banks, they call the Now Cast – the live GDP tracker – has been trending down, perhaps even slightly negative in Q2 and Q3. So hence that slight boost that I think the economy needs. I suppose the one hesitation from the Reserve Bank is, like you said, they’re seeing this near-term inflation just pop up a bit, a little bit towards the top of their comfort band at 1 to 3%. Not really the best environment for continuing to ease interest rates down.

But as long as that, doesn’t come into price and wage-setting behaviour over the medium term, and they signal this in their statement too, they should be able to look through the higher near-term inflation and continue to ease those rates down.

Ryan Bridge
So, that’s how you get through it, because their job is 1 to 3%. So when you start getting close to it, you think, oh, there’s no way they’ll move the OCR down.

Jeremy Hutton
Over the medium term is the key thing there. So, if it just pops over a short period, then yeah, I suppose that’s okay. You don’t want it to become entrenched. If you’ve got confidence it’s coming back down, then they should be able to look through it.

Ryan Bridge
Now, there are some positives out there. Mortgage re-fixing is happening.

Jeremy Hutton
Yeah. There’s a huge wave of mortgage re-fixing, coming off higher rates in New Zealand and, 75% of mortgages are at a tenure of less than a year. Now, that’s really important because you’ve got some mortgage rates coming down from seven/six percent. They should be coming down to a five or even a four in it. And, you know, that provides a lot of stimulus for households – more money in their back pocket. They’re feeling a bit better. And hopefully that feeds through into some of the other areas in the New Zealand economy which have been struggling. So, hospitality, retail and hopefully a bit more of a pick me up there when you get some of this mortgage re-fixing coming through.

Ryan Bridge
We also had a bunch of data on the stuff that generally kicks the economy up the jacksie. Gives it a bit of a rev-up. So immigration, housing, that kind of stuff. Let’s start with immigration. How are we looking?

Jeremy Hutton
Yeah. Immigration has been continuing to fade in New Zealand, and you’re right – traditionally it has been a bit of a lever that can be pulled to try and get some short-term economic growth. The numbers have been fading – we’re down to 20,000 net migrants, over the last 12 months. And I suppose what we’re seeing, and it’s pretty well documented, that we’re having young, skilled New Zealanders leaving New Zealand. That’s increasing still. And you’ve had migrants not coming in in the same numbers, and it’s pretty much all linked to opportunities in the job market, right. If they’re seeing better opportunities elsewhere, both the migrants and New Zealanders are going to leave. So we do need a little bit more of a boost, a pick me up. Hopefully we can reverse both of those numbers. So keep the New Zealanders here and then attract some highly skilled migrants as well, to boost the economy.

Ryan Bridge
It’s a bit of a vicious cycle, isn’t it? You’re wanting to have the people come so that you can give yourself a boost, but without the boost, no one wants to come.

Jeremy Hutton
Yeah. That’s right. It’s a tricky balance to maintain.

Ryan Bridge
What about tourism? The recovery. You know, everyone talks about this post-Covid, pre-Covid thing. We’re still only at about 86% on pre-Covid. And it’s just kind of flatlined. Is that a worry?

Jeremy Hutton
It is. I suppose tourism was our biggest export pre-Covid. And when your biggest market is not firing on all cylinders, that’s going to impact the wider economy. And I think the government, to their credit, has started to acknowledge this. They seem to be marketing New Zealand a bit further out there. Get the name going, and hopefully bring some more tourists in. There have been a few announcements, like more flights coming in, more connections. And hopefully that’ll boost the tourist numbers up. But yeah, 86%. Two key markets are lagging – China, they’re stuck at 60%. And Australia, our biggest inbound tourism market, stuck at 85% as well. They’re preferring to go to Asia, Japan and Bali. I think it’s more of a cost thing. New Zealand is still an expensive place to come. So yeah, we just need a little bit more impetus again in tourism. Hopefully we can get it back to pre-Covid levels and then onwards, again providing a good boost for the economy.

Ryan Bridge
Jeremy, you’re depressing me? No one wants to come for a short time, no one wants to come for a long time. Let’s talk about some positives. Let’s talk about regional New Zealand. Let’s talk about the agri-sector going gangbusters.

Jeremy Hutton
Yeah. I mean, you’re seeing this dispersion in the New Zealand economy where the rural and regional sectors are doing really well. And that’s driven by our primary sector, dairy, which is very strong. We’ve had record kiwifruit, apple season strong as well. Meat is going well. So that’s flowing through into the regional economy, which is really good. And that’s also a very key lever for the New Zealand economy. It’s traditionally what we’re really well known for overseas. I suppose of slight concern is that the last four dairy auctions globally have been slightly down. So hopefully that trend reverses, but still very, very much a tailwind for the New Zealand economy in that dairy sense. But I suppose that’s the downside of the global market. I mean we’re a price taker. We have to accept the global price. But let’s hope it stays strong, for the New Zealand economy.

Ryan Bridge
House prices we know are sort of moving sideways. What about the index this year? Performance this year – sort of expectations going into 2026.

Jeremy Hutton
Yeah. The NZX has had a tough year. Probably reflective of the whole economy. It’s down 3.5% which is clearly lagging the key peer markets in the US and Australia. They’re all up around between 5 and 8%. But what I would say is a few key points on the NZX – it’s traditionally seen as a very defensive yield market. Investors like to invest in the NZX for high dividend yield and cash flow generation. And some of those companies that traditionally fill that bucket, like the real estate companies, the Gentailers, the telcos, they’re all trading at really attractive dividend yields at the moment. And usually investors compare them to term deposits. And as the OCR interest rates have been coming down, the term deposit rates have been coming down. And those sorts of investors will start to look at these types of companies. So hopefully that should see a boost as the interest rates come down. And then other sectors that should benefit from a few more cuts – the retail sector, construction, those companies on the NZX such as Fletcher Building, Kathmandu, The Warehouse – they’ve all had a really tough couple of years.

If you get a bit more stimulation in the economy, a few more interest rate cuts, then hopefully you’ll get those companies off the canvas, and their share prices going again.

Ryan Bridge
Yeah. We just need that little kick don’t we.

Jeremy Hutton
I think so, yeah.

Ryan Bridge
So it all comes back – I mean the thing is – it does feel like we’ve been talking about this stuff for a long time. But, you know, we have been warned it’s not going to be an easy sort of up. It’s a patchy kind of return to normality isn’t it, coming out of something like this.

Jeremy Hutton
Yeah. And I suppose post the Covid shock, there was a V-shaped recovery. It was an absolute boom back the other way. And maybe people had the expectation that that would happen again. As, we start to try and kick into gear. But yeah, I think the post-Covid hangover is still there, and we’re trying to shake it. And, this recovery is just taking a little bit longer.

Ryan Bridge
That was Jeremy Hutton, an Investment Analyst here at Milford talking about the OCR – where we’ve been and where we’re heading. Hopefully to brighter futures. Just a reminder, this segment was informational only and should not be considered financial advice. And you can like, follow and subscribe this podcast wherever you like to listen. We sure appreciate you doing so.

And don’t forget, invest in yourself New Zealand. See you next week.

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