Key Facts

  • There have been slight lowerings in bank mortgage interest rates recently due to a reduction in wholesale borrowing costs.
  • The margin made by banks for their fixed rate lending has increased from 1.35% to almost 2.2%.
  • The Reserve Bank has made it clear to lenders that it doesn’t want the reduced rates offshore to influence the lending rates in New Zealand.
  • The Reserve Bank’s concerns stem from ongoing inflation pressures in New Zealand, which currently sits at 5.6%.
  • Potential reductions in mortgage rates may not occur for months, and are likely to be minimal until significant reductions possibly towards the middle of the year.

Article Summary

Recent weeks have seen minor reductions in bank mortgage interest rates, a response to the fall in the cost of wholesale borrowing. Significant hikes in banks’ margins on fixed-rate lending have been observed, but these have not been passed onto customers through lower interest rates. This is partly due to the fact that some fixed-rate lending is funded through term deposits, which have not seen a similar reduction in rates.

Global financial factors have influenced these trends, with optimism around decreasing inflation in the United States causing a reduction in borrowing costs. However, the New Zealand Reserve Bank has advised banks not to allow these international reductions to feed through to domestic lending rates.

Behind this decision lies the Reserve Bank’s concern over the persistent national inflation rate of 5.6%. Despite predictions for this rate to decline, the timeline remains uncertain. The Reserve Bank has expressed hesitation over easing mortgage rate reductions due to factors such as continued increases in household costs and concerns about global oil prices and supply chain disruptions.

The Reserve Bank may concede to lowering interest rates, but it is currently anticipated that any significant reductions will not occur until potentially the middle of this year. In the meantime, only minor adjustments downward are expected.

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