24 Nov 2008

BNZ ups ante in interest rate war

8:49 pm on 24 November 2008

The Bank of New Zealand has struck a new low benchmark for fixed-term mortgage rates.

The bank introduced a six-month rate of 6.99% on Monday.

It has also dropped its one-year fixed-term rate by 1%, from 8.29% to 7.29%.

BNZ's two-year rate has dropped from 8.29% to 7.35%.

The move comes hard on the heels of cuts to interest rates by rival banks last week.

Westpac and Kiwibank set the ball rolling last Thursday. Kiwibank cut its home loan rates by up to three quarters of a percent to 7.95% and reduced its fixed rates by varying amounts.

Westpac cut the cost of borrowing by three quarters of a percent on most of its lending products, including floating and fixed-home loans, business and farming lending rates and credit cards.

Westpac's floating rate is now 8.7% and the two-year fixed lending rate is 7.35%. Westpac says the large reduction follows falls in wholesale rates, which is the rate at which it borrows money offshore.

ANZ's two floating rates are now 8.7% and 8.5%, while National Bank's floating rates now sit at 8.95% and 8.7%.

ASB cut its floating rate from 9.45% to 8.7%. It also dropped fixed rates, with a six-month term falling to 7.35%, while its one-year rate is now 7.4%.

The bank says the rates take effect immediately for new borrowers and come into force on existing mortgages on 8 December.

Economists predict the Reserve Bank to cut rates by at least 0.75 percentage points at its next official review on 4 December. The Official Cash Rate is currently 6.5%.