Cost of Living: Economist believes interest rates could drop soon - when cuts could happen

There could be good news on the horizon for Kiwis with mortgages with an economist believing interest could be about to drop very soon.  

The Reserve Bank of New Zealand (RBNZ) held interest rates for the second time in as many months in September at 5.5 percent - having lifted it by 525 basis points since the end of 2021 in a bid to tame skyrocketing inflation.   

But inflation seems to be slowly easing in New Zealand, with the latest data from Stats NZ showing inflation had dropped to its lowest levels since December 2021 at 5.6 percent. 

Just under a month ago, Infometrics Principal Economist Brad Olsen told AM he wasn't expecting interest rates to fall anytime soon as inflation pressure continued to bite.  

But a month on, Milford Asset Management portfolio manager Mark Riggall believes the landscape has changed.  

He told AM on Thursday morning there has been a "big shift" in the last month.  

"Market measures of interest rates, so investors expectations for what interest rates are going to be doing over the next few months-two years have seen big changes and that's come about for a number of reasons," he said.  

"Firstly, inflation is coming down in the US, we had zero month-on-month inflation [increase], in New Zealand, we had food prices out last week, it fell almost a percent month on month. It fell the previous month as well, so it's very clear that inflation is coming down." 

But Riggall warned there is still "some ways to go" as year-on-year data is still more than what banks what like to see.  

He told AM co-host Melissa Chan-Green with inflation getting under control it's giving investors confidence.  

So questions have now turned to when a cut to interest rates could occur.  

"The second bit is then, well hang on, if they're not hiking anymore, what's the next step and when's that going to happen? The next step will likely be a cut because we've already hiked so much," he said.  

"How long has it taken historically between the last hike and the first cut? If we look at the US, actually the period tends to be quite short. If you look over the last maybe 50 years or 60 years in cycles, it's about 4 to 5 months on average.  

"Some can be longer, but some can be shorter but with the last hike in July, investors are going, well maybe we should see some cuts starting next year." 

Watch the full interview in the video above.