This rate cut prompted a wave of lower interest rates on home loans. Some economists are debating whether the central bank’s actions go too far.
ANZ has cut its floating home loan rate to 6.89 per cent for new loans. The bank has also lowered its fixed rates by 10 to 45 basis points, depending on the loan term. Its special one-year rate is now 5.29 per cent and its two-year rate has dropped to 4.99 per cent.
Westpac reduced its one-year rate to 5.49 per cent but ended its three-year special rate of 4.99 per cent. The bank’s general manager of products, said these cuts would boost household confidence and increase disposable income for homeowners.
Kiwibank will drop home loan rates to 6.75 per cent for existing loans from March 10 and ASB reduced its floating rates to 6.89 per cent. This reflects a near 2 per cent drop over the past six months.
BNZ lowered its floating rates to either 6.94 per cent for standard loans or 7.04 per cent for its TotalMoney, Mortgage One, and Rapid Repay products.
Some economists have concerns about these moves. Gareth Kiernan, chief forecaster at Infometrics, suggests the Reserve Bank may be overshooting its rate cuts, potentially lowering the OCR too much. He argues that the central bank might not be factoring in signs of economic improvement and risks fuelling inflation. Kiernan predicts further drops in fixed mortgage rates over the coming weeks but warns the bank is pushing too much.
Meanwhile, Kiwibank’s chief economist, Jarrod Kerr, contends that the Reserve Bank’s actions are justified. He believes the current cash rate of 3.75 per cent is still above neutral levels which could be closer to 3 per cent. Kerr argues that further cuts may be needed to stimulate demand and address ongoing economic challenges like rising unemployment.
For property owners and borrowers, the outlook for interest rates remains mixed. Corelogic’s chief property economist, Kelvin Davidson, said that further cuts will be smaller and slower. He also highlighted economic uncertainties that could place upward pressure on inflation.
Leigh Hodgetts from the Finance and Mortgage Advisers Association advises borrowers to stay vigilant. With competition heating up among lenders, borrowers should ensure they get the full benefit of OCR cuts and consider refinancing if necessary.
As the banks continue to adjust their rates, the impact of the Reserve Bank’s strategy will unfold throughout 2025. Borrowers should keep close eye on future moves.
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