PHOTO: Kiwibank
Kiwibank has announced a reduction in several of its home loan interest rates. The two-year special rate has decreased from 7.05% to 6.89%, the three-year 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 are also seeing a decline, with the standard two-year fixed rate dropping from 8.05% to 7.89%.
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This move follows a significant drop in wholesale rates before Christmas and into early January, leading to predictions that fixed interest rates across banks could decrease by 0.5% to 1% by March. Squirrel chief executive David Cunningham highlighted the wide bank margins and expressed surprise if this reduction did not occur.
Brad Olsen, CEO of Infometrics, suggested that Kiwibank’s rate cuts were only a partial reflection of the lower wholesale rates. He noted that the two-year rate reduction was approximately a third of the drop in two-year swap rates observed in November. Olsen suggested that Kiwibank might be hedging its bets on the sustainability of lower wholesale rates.
Despite the announcement, Cunningham emphasized that these reductions were relatively small compared to the changes in wholesale interest rates. He stated that a significant shift in fixed home loan rates might not occur until term deposit rates experienced material decreases.
Kiwibank is also adjusting term deposit rates, decreasing them by 10 to 15 basis points, while increasing its interim interest rate by 15bps. Cunningham highlighted the disparity between the fall in the one-year wholesale rate and the relatively higher one-year term deposit rate.
Predictions suggest that the Reserve Bank might move the official cash rate (OCR) earlier than expected, with a market expectation of a May reduction. However, Kiwibank’s chief economist, Jarrod Kerr, believes a cut in the first quarter is too early, and the Reserve Bank may wait to see inflation running below 3% before making a move. Despite uncertainties in the timing and magnitude of rate cuts, lower interest rates are anticipated throughout the year.