BNZ and Kiwibank cut mortgage rates ahead of expected RBNZ move

BNZ and Kiwibank slash home loan rates ahead of the Reserve Bank (RBNZ) official cash rate (OCR) decision, as economists predict a 50bp cut to stimulate New Zealand’s slowing economy.

Major lenders are moving early ahead of this week’s OCR announcement, with further cuts to fixed mortgage rates across the board.

BNZ announced on Tuesday that it would reduce several fixed-term rates, RNZ reported. Its six-month rate drops 10bp to 4.89%, the 18-month falls 26bp to 4.49%, the two-year dips 10bp to 4.65%, and the three-year will drop to 4.85%.

Kiwibank earlier trimmed its home loan rates, cutting its one-year fixed to 4.49%, matching other major banks. Its two-year will drop to 4.69% and its three-year to 4.99%.

Last week, ASB followed rivals by cutting its one-year and 18-month fixed mortgage rates to 4.49%, aligning with BNZ and Westpac’s earlier, deeper reductions.

The rate cuts come as RBNZ faces pressure to deliver a 50bp cut this week to support a slowing economy after GDP shrank 0.9% in the June quarter. The change would lower the OCR from 3% to 2.5%, its lowest level since mid-2022.

Economists see further cuts ahead

Kiwibank economists said a more accommodative OCR was essential to stimulate activity across the economy.

“A stimulatory official cash rate is needed to encourage businesses to take on more risk, either by investing or hiring,” they said.

The economists added that lower borrowing costs would also help households boost spending.

“It was also necessary if households' discretionary spending was to increase,” they said.

Kiwibank’s team said the central bank would likely move quickly to ease monetary policy.

“An OCR of 2.5% was closer to what was needed. The risks are towards a 2% cash rate, in our opinion,” they said.

Infometrics chief forecaster Gareth Kiernan said markets were pricing in a 60% to 70% chance of a 50bp cut and that such a move would “likely signal another reduction in November.” However, ANZ chief economist Sharon Zollner and BNZ’s Doug Steel expect a smaller 25bp cut this time, with further easing to follow before Christmas.

“It is clear that the OCR will drop at least to 2.5% by Christmas, but how it gets there is not certain,” Kiwibank’s economists said.

Market outlook

With BNZ and Kiwibank now joining the rate-cutting trend, mortgage advisers are likely to see renewed borrower interest, particularly among fixed-term customers looking to refix at lower rates.

Interim RBNZ Governor Christian Hawkesby will oversee Wednesday’s decision, one of his final acts before Swedish central banker Anna Breman takes over in December. With inflation easing and growth faltering, the Monetary Policy Committee faces one of its most finely balanced decisions in recent years — and markets are braced for either outcome.

RBNZ’s policy announcement this week will set the tone for the housing and lending markets heading into summer.

Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.