Be Careful About Getting Too Excited Over Interest Rates in 2025
A new year often brings hope for better times, and for a lot of people, that means wishing for lower interest rates. But before getting your hopes up, it’s worth looking at the bigger picture. Rates might not drop as much—or as fast—as some are expecting.
The Reserve Bank and other central banks around the world have a tough job right now. They’re trying to keep inflation under control while supporting the economy. While inflation is starting to ease, it’s still not low enough for them to relax just yet. If they cut rates too soon, inflation could pick up again, and that’s the last thing they want. So, rates could stay higher than we’d all like for a bit longer.
For people with mortgages, this could mean no big relief in sight just yet. While rates might be falling, they’re still sitting at levels that make borrowing expensive. If you’re renewing a loan this year, chances are your payments could still go up, so it’s a good idea to plan ahead and make sure you’ve got your finances sorted.
There is some good news, though. The housing market seems to be picking up a bit, with more homes being sold and built. A growing population is helping keep things steady, and when rates eventually drop more this year, things might get a bit easier for buyers and builders. But it’s not going to happen overnight. Borrowing is still costly, and that’ll slow things down for a while.
It’s not just New Zealand dealing with these challenges—this is a global thing. What happens in places like the US can have a ripple effect here, so we need to keep that in mind too. It’s not all bad news, but it’s definitely not a time to get carried away with optimism.
The bottom line? Be realistic and stay prepared. Don’t assume rates will drop quickly or by a lot. Make financial decisions with a bit of caution and give yourself some wiggle room. Things are improving, but it’s going to take time—so hang in there, stay on top of your money, and take it one step at a time.
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