The Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate (OCR) by 25 basis points, putting it at a record low of 1.5%.
ANZ and Kiwibank both announced cuts to their mortgage rates moments after the decision. ANZ will lower the rates on its floating and flexible home loans by 0.10%, and reduce its fixed-term rates by 0.06% to 0.14%. Kiwibank, meanwhile, will cut its floating home loan rates by 15 basis points to 5.65 per cent for those on a variable rate and offset rate, and 5.7 per cent for those on a revolving rate.
“Since the last OCR cut in 2016, fixed home loan rates have fallen steadily independent of any cash rate change,” ANZ Managing Director Retail and Business Banking Antonia Watson said.
“The current extreme low interest rate environment not only represents an opportunity for new home buyers to enter the market, but for existing home loan customers to pay off as much of their debt as possible.”
Commenting on the cut, CoreLogic senior property economist Kelvin Davidson says while the decision will undoubtedly reignite the long-fought ‘mortgage rate wars’ between banks, RBNZ’s proposed capital requirements may yet push mortgage rates back up.
“Competition amongst the banks is already strong, ‘rate wars’ are frequent, and a lower-for-longer official cash rate also bodes well for mortgage rates over the next 1-2 years at least,” Davidson said.
“In this environment, borrowers are sitting pretty. Everybody still needs to be mindful, however, of the probable requirement that banks hold more capital on their balance sheets in future. It seems likely that the proposal will be introduced in some shape or form, and could push up mortgage rates by as much as 1%-point.”
ASB economists believe there is around a 50% probability of another OCR cut in August, but say the risks are skewed towards a later move.
The Reserve Bank stated that a lower OCR was now “most consistent with achieving objectives” and would provide a “more balanced outlook for interest rates.”