OIS swap markets indicate there will be a rate cut next month, as major economies across the globe contend with slowing growth. The Reserve Bank gave a strong indication it was considering a cut during last month's OCR announcement.
Wholesale rates have fallen significantly over the course of the year, hitting record lows, before bouncing up in recent weeks.
In its latest markets outlook, BNZ says markets are pricing in a "terminal" 1% OCR in this cycle. The bank says the balance is tilted towards "lower short end rates", and lower inflation numbers could further increase the chances of a cut.
The bank's economists, including Craig Ebert, and Stephen Toplis, (pictured), expect the Reserve Bank's Monetary Policy Committee to make another cut "unless there is a large upside surprise".
"The market is likely to remain highly convicted on a possible OCR cut by the RBNZ in August, and the broader backdrop of subdued NZ and global activity indicators is likely to restrain the upside to short-end NZ rates," they said.
Banks continue to slash mortgage rates as they anticipate a lower-for-longer interest rate environment.
Kiwibank became the latest to make cuts today, as mortgages remain well below the 4% mark. Its two year special is down to 3.85%, joining the big four, TSB, SBS, and Sovereign.