By Susan Edmunds of 
There is eager speculation over what interest rates will do in the near future Photo: Stuff/Kathryn George
Interest rates - and their rapid rise - have been a source of pressure on many households in recent years.
From their Covid floor, home loan rates have risen from lows near 2 percent to more than 7 percent.
But now that more commentators are predicting central banks will start cutting interest rates as they get on top of inflation - here and around the world - attention is turning to when those rates will start to drop again.
David Cunningham, chief executive at mortgage advice firm Squirrel, said the falls could happen quite fast.
He noted the quarterly inflation rate had fallen below 1 percent in December and the "inflation surge" appeared to be over.
That should lead to a significant fall in interest rates this year.
Mortgage rate cuts could happen before the Reserve Bank lowers the official cash rate Photo: RNZ
"It's exactly what wholesale markets are pricing to happen - despite cautious rhetoric from the Reserve Bank as part of its last official cash rate (OCR) announcement of 2023, which suggested that it was likely to be 2025 before OCR cuts start to come through.
"For longer-term interest rates, there's likely to be a continued downward drift as we creep closer to anticipated OCR cuts."
It was "pretty realistic" to expect one-year fixed home loan rates to drop below 6 percent by the end of this year and below 5 percent by the end of 2025, he said. Banks are offering about 7.35 percent on a one-year term at the moment.
But when the decline started would depend on an easing in term deposit rates, he said .
ANZ economists forecast that one-year fixed rates will be about 6.1 percent by the end of the year. The bank was predicting a series of OCR cuts from this August, taking the rate to 3.5 percent by the middle of next year.
Senior strategist David Croy said "anything was possible" because financial markets were in a fluid space, assessing a range of risks.
"It's been a volatile start to the year. The latest fear is some of these regional bank exposures to commercial real estate could morph into something bigger and that has seen bond yields fall, which has carried over to this market as well.
"If we were to see global interest rates fall that could mean that some of those lower rates we are talking about for later in the year or next year might arrive sooner."
But he said that was not the ANZ economists' base case, which was for rates to fall "but not quite yet".
People should be careful about hoping for a rapid rate fall, he said.
"If there were some nasty accident that caused rates to fall globally and had an impact on mortgage rates, is that something we'd welcome? If it had a downside impact on the economy that's not a great environment. Careful what you wish for."
Infometrics chief forecaster Gareth Kiernan said he expected the OCR to get to 4 percent by the end of next year, which would imply more limited falls in longer-term wholesale rates because they had already largely priced in that drop.
Infometrics chief forecaster Gareth Kiernan Photo: RNZ / Rebekah Parsons-King
"In other words, one- to two-year fixed rates will have scope to ease as the OCR comes down, but less so the longer the term."
It could be a mistake to assume that the inflation battle was largely won on the basis of December's data, he said.
"Inflation has a seasonal pattern, even if it's not a particularly pronounced one. December is typically a relatively weak quarter, and if we look at Stats NZ's seasonally adjusted CPI series, it shows that the quarterly change was 0.7 percent, or equivalent to 2.9 percent over the course of a whole year. Rather than being at the mid-point of the Reserve Bank's target band, it's just snuck inside the ceiling."
