If Interest Rates Are Falling… Why Are You Still Broke?

Interest rates are starting to ease, and the government-particularly the National Party-is quick to take credit. But before we pop the champagne, let’s get real about what’s actually going on.

First, interest rates are set by the Reserve Bank of New Zealand (RBNZ), not the government. The recent drop in the Official Cash Rate (OCR) is part of the RBNZ’s independent strategy to support a slowing economy, not a government achievement. And while it might sound like good news, it's not the full story.

Domestic inflation is still high-rents, food, insurance, and services remain painfully expensive. And here’s where things get tricky: cutting the OCR can weaken the New Zealand dollar (NZD). A weaker NZD makes imports more expensive, and that can drive inflation right back up, hitting everyday Kiwis hardest.

Meanwhile, current government policies-like tax cuts and increased spending-risk further fuelling domestic demand. That means inflationary pressure could rise again, forcing the RBNZ to reverse course and hike rates in the future. S0 short-term relief, long-term risk.

So no, it’s not just you. Even with rates falling, the cost of living crisis is far from over. And while politicians may try to spin it, the real drivers of economic pain are much more complex-and largely out of their control.

Interest rates might be falling. Your bills? Not so much.

So what does this all mean for different Kiwis?

• 📉 Businesses: May benefit from lower borrowing costs short-term, but higher import prices and wage demands could squeeze margins.

• 🏡 First Home Buyers: Could see lower mortgage rates for now, but volatile inflation could mean rates bounce back. Uncertainty makes long-term planning hard.

• 💸 Renters: Still face rising rents, especially as landlords try to offset costs. Falling interest rates haven’t stopped housing market pressures.

• 👵 Pensioners: Fixed incomes get eroded if inflation stays high. A weaker NZD also makes essentials like medicine and food more expensive.

  
  

🧑‍🤝‍🧑 Everyday Kiwis & Social Cohesion: Cost of living stress increases inequality. When people feel like they’re falling behind, trust in institutions drops-and that’s not great for anyone.