The Reserve Bank (the Bank) has trimmed the Official Cash Rate (OCR) by another 0.25%, taking it down to 2.25%. That’s a long way from the peak of 5.5% we saw during the big push to get inflation under control. The Bank says we’re starting to see early signs of economic recovery, which is good news.

Even so, there’s still a lot of slack in the economy. Unemployment’s higher than ideal, and that usually helps inflation settle down. The Bank expects inflation (currently at 3%) to drift back toward 2% over time.

The Bank also pointed out a few risks that could slow things down — like weaker growth in China, a possible reality check in global share markets if AI hype cools off, cautious consumer spending, and only modest gains in house prices.

None of that is new. But what did stand out was how often the Bank mentioned the upside risks for inflation.

Here are a few of the big ones:

• Our long-term economic growth might now only be around 1.5%, thanks to sluggish productivity — meaning inflation can show up even with mild growth.

• Households and businesses still expect prices to rise more than usual.

• When the economy improves, many businesses may try to rebuild squeezed profits by bumping up prices.

• Overseas politics is creeping into central banking, which could make global inflation stickier.

• Local spending could get a push from things like Fonterra’s capital return and Kiwis reacting more strongly to lower interest rates.

In the final vote, five members of the Monetary Policy Committee were keen on the 0.25% cut, and one preferred no change. That’s the Bank’s subtle way of saying: unless something really nasty hits the economy, we’re probably at the bottom of the rate cycle.

Don’t read that as “rates are going up tomorrow.” There’s still heaps of spare capacity, and the next couple of years will depend on how fast things tighten up. Growth should eventually come from better farm returns, cheaper borrowing, more tourists and international students, more construction, and Kiwis feeling a bit more confident to spend and invest.

So… what does this mean for your mortgage?

If you were fixing today, a 3–5 year rate looks pretty comfortable — leaning toward the 5-year option if you want certainty. But the global outlook is still messy, so splitting across two terms can be a smart way to spread risk.

If you want help working through the options, or you’re wondering how this move affects your current lending, just let me know — happy to talk it through.