Bank economist Sabrina Delgado criticised the Reserve Bank for a “misstep”.
While it cut the Official Cash Rate in November, it simultaneously signalled further cuts were unlikely, a move that spooked markets and forced interest rates higher.
Despite that, Delgado said: “It is important to stress that interest rates today are significantly lower than they were this time last year.
“It’s having an impact. Household budgets are starting to feel the ease and we’re seeing growing confidence.”
It marks a prospective turning point for households and businesses that endured soaring living costs followed by recession in recent years and months.
Lower interest rates are helping put more money in the back pockets of Kiwi households. Photo / NZME
Kiwibank economists described the economy for much of 2025 as being “stuck in the mud”, effectively operating at two speeds where exporters powered ahead while the local engine stalled.
Shift already visible in housing market
Yet while farmers and tourism operators did the heavy lifting this year, economists tipped 2026 to be the year the domestic economy began to regain ground.
That was already visible in the housing market.
Kiwibank data showed a “return of the investor”, with lending to property investors jumping nearly 10% in the last six months.
It also noted data showing Kiwis making the largest retail spend since late 2021, suggesting there was “more fun, discretionary spending” taking place.
However, the recovery wasn’t without scars, Delgado said.
A “powerful” drain of talent had flowed across the Tasman that she dubbed the “Aussie pull”.
With Australia’s unemployment rate sitting at 4.3% compared with New Zealand’s nine-year high of 5.3%, more than 70,000 Kiwis have left for “economically greener pastures”, she said.
Delgado also argued the local economy would have regained strength faster if the Reserve Bank hadn’t tripped it up.
The Reserve Bank’s indication it could slow down the speed of rate cuts had not stabilised the market but rather sent a message that undid the positivity around the earlier October rate cuts.
Bad news over
Kiwibank’s cautious optimism followed a more cheerful message from ASB’s economic team earlier this week.
They declared the country had put the “chapter of bad news” behind it, with chief economist Nick Tuffley predicting growth of more than 2.5% next year.
That was driven by a simple reality: Kiwis were ready to spend again.
“Consumer spending has been lifting for a year, and in the September quarter consumers went nuts in electrical and electronics stores,” Tuffley said.
ASB believed the falling Official Cash Rate – down 3.25% from its peak – had done enough to encourage a “smoother ride” for households in 2026.