Biggest bank cuts home loan rates

New Zealand’s biggest bank is cutting a number of its home loan interest rates, effective Thursday.

ANZ said it would drop its rates by up to 55 basis points. It has made no change to its six-month and one-year rates but reduced the longer terms.

Its special five-year rate, for borrowers with at least 20% equity, will drop from 6.84% to 6.59%.

Its 18-month special will drop from 6.64% to 6.49%.

Its standard five-year rate drops from 7.64% to 7.09% and its two-year standard rate from 7.34% to 7.05%.

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It comes after news that unemployment rose to 3.4% in the December, and pay did not rise as much as some economists had expected. The Reserve Bank, ANZ and ASB had been tipping official unemployment would fall to 3.2%.

Inflation, as measured by the consumer price index, also came in lower than some had predicted.

That led to ASB, BNZ, Westpac and Kiwibank downgrading how much they expected the official cash rate to increase this month.

They said they expected a 50 basis point increase, rather than the 75 basis points previously forecast.

BNZ research head Stephen Toplis said the bank now also expected the OCR, which is currently 4.25%, to peak at 5% this year rather than at 5.5%.

ASB economist Mark Smith said the Reserve Bank could start cutting the official cash rate in the second quarter of next year, a few months earlier than previously forecast.

Infometrics principal economist Brad Olsen said ANZ’s interest rate move reflected falling bond markets. The risk of a recession was rising and banks were also competing for a share of a less-active housing market, he said.

But he said, while interest rates generally seemed to have dropped compared to a week or two ago, the underlying data had not yet provided the basis for that move. Inflation was still strong and the labour market was tighter than normal.

He said the Reserve Bank had been burnt badly before by underestimating the strength of inflation and was unlikely to want to take its foot off the interest rate pressure prematurely.

Last week, Westpac lifted the interest rates on new six-month, 12-month, 18-month and two-year fixed term home loans by 10 basis points, while dropping its four-year rate by 10 basis points, and its five-year rate by 30 basis points. ASB dropped its three-, four- and five-year home loan rates, and raised its one- and two-year rates.