How are New Zealand banks responding to 8 May 2019 Official Cash Rate cut? (Updated)

Hot on the heels of the Reserve Bank of New Zealand’s rate cut to 1.5%, banks have followed suit, cutting both home loan interest rates and savings rates.

ANZ announced it is to cut 10 basis points (0.1%) off its floating and flexible home loan rates. The bank will also cut fixed term interest rates by six basis points (0.06%) to 14 basis points (0.14%).

Kiwibank is also to cut floating rates by 15 basis points (0.15%) to 5.65% for those on a variable rate and offset rate.

However, the bank giveth and taketh away; it will also cut 15 basis points (0.15%) off many of its term deposit rates.

Like Kiwibank, Westpac has dropped some home loan rates but has also reduced 90-day term deposit rates and savings rates.

Westpac reduced its Choices Floating rate by 16 basis points (0.16%) to 5.79% and its Choices Everyday rate by 11 basis points (0.11%). to 5.84%. This change is effective from 10 May for new customers and 30 May for existing customers.

Westpac has also reduced its one-year fixed special rate by 16 basis points (0.16%) to 3.89% and its fixed special two-year rate by 4 basis points (0.04%) to 3.95%. To be eligibible for these rates, the customer must have a minimum of 20% equity and a transaction account with a salary.

Compare home loans rates with Canstar

On the other hand, the news is not so positive for savers. Westpac has made a substantial cut of 25 basis points (0.25%) to 2.40% to its 32-day Notice Saver interest rate. Further, Westpac has reduced its 90-day term deposit rate by 15 basis points (0.15%) to 2.50%), its four-month term deposit rate by 0.15% to 2.75% and its five-month term deposit rate by 20 basis points (0.20%) to 2.75%. Westpac has cut all of its term deposit rates of between six and nine months by 10 basis points (0.10%).

Compare savings accounts with Canstar

Westpac has kept its Base interest rate for Online Bonus Saver and Online Bonus Saver PIE at 0.10%. However, it has reduced bonus interest rates on both products by 15 basis points (0.15%) to 1.75%. All changes to savings rates are effective 10 May.

On Thursday (9 May) ASB announced it was dropping its floating home loan rates. ASB will reduce its variable home loan rate by 10 basis points (0.10%) from 5.80% to 5.70%. It will also reduce its Orbit home loan rate by 5 basis points (0.05%), from 5.80% to 5.75%. The changes will be effective from 15 May for new customers and from 22 May for existing customers

Earlier, Canstar tuned into the 8 May media conference on the Monetary Policy Statement, to find out what the rate cut could mean for borrowers and savers.

Compare savings accounts with Canstar

Here is our summary of key points, to help you with your financial decision making:

How will the rate cut impact on New Zealand’s housing market?

ASB wins first-ever Bank of the Year – Home Loans Award

RBNZ Governor Adrian Orr anticipates that the rate cut will free up capital and “if people choose to invest [this extra capital] in housing, that’t their choice”.

Mr Orr also expects New Zealanders’ increased capital to come through in household spending.

Compare home loans with Canstar

How will the rate cut impact on New Zealand savers?

Kiwisaver fund options

Mr Orr says there are two sides to the rate cut – the impact on the homeowners and the impact on the savers. New Zealanders who are trying to boost their savings, may need to think about what they could do with their capital, outside of the option to just deposit money in a bank.

Compare savings accounts with Canstar

Will the potential increase to banks’ capital requirements mean they don’t pass on the rate cuts to borrowers?

Consultation on the potential increase to the amount of capital banks need to hold is still open. A member of the media conference asked Mr Orr whether he thought banks would hold off passing on the rate cut to borrowers (through cutting home loan interest rates) in case the amount of capital banks are required to hold does increase.

Here was his response:

“For those who want to increase margins, there will be those who want to grow their customer base.”

In other words, while some banks may choose not to reduce their home loan interest rates, so they can effectively get more revenue from homeowners through loans, other banks are likely to reduce their interest rates so that they can attract more business.

Budget 2019 is just around the corner, why didn’t RBNZ wait until after that to decide what to do with the OCR?

calculating credit card interest rate

The Government will release its Budget in just over three weeks, on May 30. During the conference, Mr Orr was asked why the Monetary Policy Committee didn’t wait to see how the Government was allocating spending, to see what future impact this could have on the economy, before making the decision to cut the OCR.

Mr Orr explained the Government’s allocation of spending in a Budget – and the impact on the country’s economy – is complex and that it takes time to see an impact.

The Committee is “always waiting for that one new piece of information” before deciding if there should be any change to the OCR.

However, while the Committee did consider that the Budget is pending, it also had to take into account that whatever may come up in long-term fiscal monetary policy can have a very different impact, depending on the way spending has been allocated.

For example: What is the spending on? Is the spending really just a reallocation of wealth from one sector to another? [so effectively is not additional spending].

For these reasons, it is better to use other factors to determine an OCR decision, Mr Orr says.

Canstar NZ general manager Jose George responds to the rate cut

Jose George Canstar“Today’s Official Cash Rate announcement should mean better interest rates for home loan customers and people in the market looking for a home loan, as lower rates stimulate activity in mortgage lending,” Canstar NZ general manager Jose George says.

“Savings interest rates are expected to drop even further. This could affect retirees who depend on interest income from deposits to supplement their living expenses. It could also direct people to shift their money from secure bank investment products to riskier forms of investment.

“With the dollar dropping, we expect to see petrol prices increase, which will impact other household expenditure i.e. food, entertainment and utilities,” Mr George says.

Compare savings accounts with Canstar

Share this article