Kiwibank is cutting a number of its home loan rates, but there’s a warning that it could weaken the impact of the Reserve Bank’s official cash rate increases if banks continue on this track.
Kiiwbank is cutting its three, four and five-year fixed rates.
The three-year special rate drops from 5.89% to 5.69%, the four-year special from 6.05% to 5.85% and the five-year special from 6.29% to 5.99%.
Standard rates over these terms range from 6.59% to 6.69%. Standard rates are usually for borrowers who do not have 80% equity in a deal.
Kiwibank also has a one-year special of 4.95%.
Other banks have also been cutting rates in recent weeks, despite forecasts that the official cash rate may need to lift to at least 4%, from its current 2.5%, to calm inflation.
It has been predicted that the official cash rate will increase by 50 basis points on Wednesday.
In the past month ASB, BNZ, Westpac and ANZ have all cut some of their retail rates, which economists said was possible because of reductions in their wholesale cost of funding.
Infometrics economist Brad Olsen said if retail rates keep coming down, it could undermine what the Reserve Bank was trying to achieve and could mean the official cash rate would need to push back harder.
“Longer-term interest rates have been falling in recent times, which has been reducing bank lending costs. Wholesale rates are down around 25 basis points on average over the first ten working days of August compared to the end of July. Banks are responding to this fall in funding costs and passing on the reduction into retail rates, ”he said.
“Further falls in retail rates should worry the Reserve Bank. The focus from the Reserve Bank is getting inflation under control through reducing the level of economic demand, and they’re trying to achieve that by raising the official cash rate. are falling, then the Reserve Bank will be getting nervous about their inflation fighting strategy.
“In fact, continued cuts to retail rates would likely require more interest rate hikes from the Reserve Bank, and strengthens our call that a 75 basis point increase likely needs to be a live option on the table this week.”
ICBC and Heartland have the cheapest advertised rates in the market over a one-year term at 4.79%.