The tit-for-tat interest rate battle between retail banks continues with Kiwibank cutting fixed home loan and deposit rates across the board following falls in wholesale rates. 

The bank has responded to recent cuts by the market’s biggest lender, ANZ, matching it for most durations, but with a market-leading one-year rate of 6.29%. 

Kiwibank has shaved between 4 basis points from its six month loan to as much as 20 basis points for its longer-term fixed terms. 

The six-month rate has become a favourite among borrowers looking to position themselves for further falls. 

The state-owned bank has also reduced deposit rates between 10 and 30 basis points. 

The rate cuts reflect falls in wholesale interest rates in New Zealand and on global finance markets as slowing inflation has central banks moving to reduce their benchmark rates. 

Waiting for the Fed 

Finance markets are keenly waiting for the decision from the US Federal Reserve later this week, which is expected to start its rate-cutting cycle, although analysts are divided on whether it will be a 25 basis point cut or a more aggressive 50 basis points to counter any softening in the US economy. 

Investors are betting on further big rate cuts by the Reserve Bank this year, with picks that the Official Cash Rate, which directly influences floating rates, will be cut another 87 basis points to 4.35% by the end of the year. 

ASB senior economist Kim Mundy says that looks too optimistic. 

“The exact timing and pace of easing will be determined by the outlook for both the economy and inflation.” 

The next RBNZ rate review is early October. 

- Gyles Beckford, RNZ