Kiwibank cuts home loan rates

Experts also predict RBNZ's next move

Kiwibank cuts home loan rates

Kiwibank has reduced several of its home loan interest rates, signalling a potential trend in the industry.

The bank’s two-year special rate has been adjusted from 7.05% to 6.89%, with other terms following suit: the three-year rate dropping from 6.89% to 6.75%, the four-year from 6.79% to 6.69%, and the five-year from 6.79% to 6.59%.

Standard rates have also been slashed, with the two-year fixed rate falling from 8.05% to 7.89%, Stuff reported.

Industry observers had anticipated broader adjustments in fixed interest rates due to a significant decline in wholesale rates before and after the holiday season.

“I would be surprised if we don’t see most fixed interest rates down between 0.5% and 1% by March,” Squirrel CEO David Cunningham said. “Bank margins are very wide at the moment.”

Kiwibank’s strategic move

Infometrics CEO Brad Olsen noted that the cuts were “just a partial pass-on of lower wholesale rates.”

Olsen said the reduction in the two-year rate by Kiwibank represented just a third of the decline observed in the two-year swap rates at the beginning of November.

“So, as well as matching some of the moves of other banks who moved earlier, Kiwibank also seems to be hedging its bets around if the lower wholesale rates are here to stay or not,” he told the news agency.

Cunningham said the reductions were small compared to wholesale interest rate changes, stating that substantial shifts in fixed home loan rates would depend on significant decreases in term deposit rates.

Kiwibank is cutting term deposit rates by 10 to 15 basis points while simultaneously implementing a 15 basis points increase in its interim interest rate.

Cunningham stressed the importance of closely monitoring term deposit rates, stating, “Over the last month, the one-year wholesale rate has fallen from about 5.6% to 5.3%, and yet we have a one-year TD rate of 6.15%, which is pretty much the market level.”

What’s RBNZ’s next move?

Predictions suggest that the Reserve Bank might adjust the OCR sooner than anticipated, with the Squirrel boss noting the market is factoring in a potential reduction in May.

Last week, Bloomberg economists said the effects of previous tightening measures were taking hold, and cuts might occur in the first quarter as the central bank shifts focus from combating inflation to stimulating demand.

However, Jarrod Kerr (pictured above), chief economist at Kiwibank, expressed skepticism about this possibility.

“We recently pushed out our call for rate cuts from May to November 2024,” Kerr told Stuff. “We did this following the Reserve Bank’s stern statement in November last year. We were a bit aggressive with our May ‘rate cut commencement’ call. But that is becoming consensus among interest rate traders now. I still think it is possible that we get a cut in May.

“A cut in the first quarter is too early. I think the Reserve Bank will want to see inflation running below 3% first. And that will take a bit more time. The direction of the next move has become clearer. And it’s down, even though the Reserve Bank has threatened us with another rate hike.

“The timing of the first cut, and the magnitude of the cuts this year and next are difficult to gauge. But we will most likely see lower interest rates this year.”

To read the Stuff report, click here.

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