Key Facts

  • A second major retail bank, BNZ, has lowered some of its lending rates.
  • BNZ’s standard two-year fixed rate is decreased by 16 basis points to 7.49%, and three-year fixed rate by six basis points to 7.39%.
  • The cuts follow similar action by the country’s largest lender, ANZ, influenced by a decrease in wholesale rates.
  • ASB senior economist Mark Smith notes that these cuts echo the global and local decrease in inflation rates, which encourages confidence in possible cuts to central bank benchmark rates.
  • Cuts in wholesale rates, like the two-year swap rates that have dropped 100 basis points since October’s peak, have a significant effect on local mortgage rates.
  • Central banks may not welcome a strong drive by retail banks to further decrease rates as higher rates help control inflation and consumer spending.
  • A concern for central banks is that lower rates could reignite the housing market, though the Reserve Bank has plans to implement debt-to-income ratios (DTI) next year, controlling lending based on borrowers’ incomes.

Article Summary

BNZ, one of New Zealand’s leading retail banks, has cut some of its lending rates, following a similar action taken by ANZ, the country’s biggest lender, earlier in the week. The rates decreased include BNZ’s standard two-year fixed rate down to 7.49%, and its three-year fixed rate to 7.39%. This action comes as a response to a fall in wholesale rates, which play a critical role in banking.

According to Mark Smith, ASB senior economist, the drop in retail rates reflects the slowing of global and local inflation, boosting the hopes of cuts in central bank benchmark rates. The fall in wholesale rates, which have a major influence on local mortgage rates, is exemplified by the drop in two-year swap rates by 100 basis points since their peak in October.

As per Smith, efforts from retail banks to significantly lower rates might not be well received by central banks since they have been using higher rates to manage inflation and consumer expenditure. A future apprehension for central banks could be the revival of the housing market triggered by lower rates. Nevertheless, the Reserve Bank (RBNZ) is looking to introduce a new measure in the form of debt-to-income ratios next year, tying the amount of lending to borrowers’ incomes to manage this.

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