'I can't believe we're still in recession a year out from the depths of our economic turmoil last year'
Westpac has become the latest major bank to slash mortgage rates, joining BNZ and ANZ in offering a one-year special rate of 4.49 percent ahead of next week's crucial OCR decision.
Westpac announced it would cut all its advertised home loan rates by between 10 and 40 basis points from today, bringing its one-year special rate down from previous levels to match its competitors. Westpac is also reducing its five-year special rate to 4.99 percent and cutting term deposit rates.
Sarah Heran, Westpac's general manager of product, sustainability and marketing, noted that the one-year special rate has fallen by 2.65 percent over the past 15 months. "It's an extremely competitive market out there and we continue to fight hard to win business and pass on lower interest rates to our customers," she said.
BNZ had earlier moved to the 4.49 percent mark, with executive Karna Luke highlighting that this represents nearly a 40 percent drop from February 2024's peak of 7.35 percent for the one-year fixed term. For borrowers with a $500,000 mortgage moving from 5.19 percent, the new rate could save over $2,400 across the 12-month fixed period.
The rate cuts come as the market waits to see how low the OCR will go next week. Kiwibank economists are calling for aggressive monetary stimulus to pull the country out of its prolonged recession, as they have been doing for some time.
"We've looked at that and gone, 'I can't believe we're still in recession a year out from the depths of our economic turmoil last year,'" says Jarrod Kerr, Kiwibank's chief economist. "It's really disappointing that we recorded this massive recession in 2024, and we've actually contracted further over the year."
The weakness is undeniable, with the economy contracting 0.9 percent in the June quarter – far worse than the Reserve Bank's forecast of a 0.3 percent contraction. This has prompted Kiwibank to advocate for bold action when the Reserve Bank meets next Wednesday.
"On the back of that, we've said that whatever the Reserve Bank has done to date, it hasn't been enough to turn the economy around, and we simply need lower interest rates," Kerr says.
Kiwibank economist Sabrina Delgado agrees: "They have to really hit the accelerator and get to 2.5% really quickly. We're saying they need a 50-basis point cut in their October meeting, and that takes us to 2.5% – which, we should have been there by now."
Kerr says that the 250 basis points of cuts delivered so far have merely returned policy to neutral settings around 3 percent, without providing actual stimulus. Delgado says that the Reserve Bank should really reach 2.25% by year end.
“We’re saying another 25-basis point cut to take us to 2.25 by November,” she said.
“From there, it’s a bit of a 50-50 on whether more is going to be needed. We know we’re going to be moving into stimulus territory, and we’re hoping that we won’t have to get to 2%. But that’ll depend on how the summer plays out, what the data shows us, and whether consumers are consuming, whether investment picks up from businesses.
“But let’s get to 2.5% and then reassess from there.”
Mortgage adviser Jeremy Andrews from Key Mortgages reports increased mortgage applications recently and expects banks to cut their test rates – the rates used to assess borrower affordability – especially if the Reserve Bank delivers a double 50-point cut.
Financial markets currently price in a terminal rate of about 2.24 percent, but the Reserve Bank's response next week will be pivotal in setting the trajectory for the economy heading into 2026.
