8 Jun 2009

Kiwibank raises five-year interest rate

4:53 pm on 8 June 2009

Kiwibank is the latest lender to raise its five-year interest rate as the cost of borrowing for banks in overseas money markets continues to rise.

The move by the state-owned bank to raise its five-year rate by 35 basis points to 7.95% follows rises by the Bank of New Zealand, ASB and TSB on Friday.

The interest rate on 10-year debt in the United States is at its highest point since November last year amid money market expectations of a strong economic recovery.

Radio New Zealand's economics correspondent says this will be of concern to the Reserve Bank which warned in April of rising interest rates for longer-term borrowing on local money markets.

The Reserve Bank said then that the rises did not fit with its expectation of a very gradual economic recovery.

It pledged to keep the Official Cash Rate low until the end of next year to counteract rising local money market rates.

But Radio New Zealand's economics correspondent says there is little the Reserve Bank can do about interest rates on overseas markets where New Zealand banks raise up to 40% of their funds.