New Zealand’s banks are set to face increased pressure to slash interest rates after ASB Bank became the latest lender to drop the costs across its fixed mortgage products.
The bank yesterday announced it had cut rates by an average of 26 basis points across all its fixed home loan products, mirroring similar moves from Kiwibank and HSBC’s local unit.
Head of fixed income at Harbour Asset Management Christian Hawkesby said the main driver had been the recent spate of global economy uncertainty, which had seen the Reserve Bank keep the official cash rate at 2.5 per cent and push out the timing of rate rises into the middle of next year.
As a result, swap rates, or the costs banks pay for funding, had fallen, with the yields on the two-year benchmark swap falling almost a fifth since August 1 to recently trade at 3.11 per cent.
“Banks have now decided to pass on the declines in the swap rates in wholesale markets onto their customers,” Hawkesby said.
The robust position of Australasian banks had also led to them being slightly less fearful of their own funding conditions, with strong balance sheets, high levels of liquidity and capital ratios relative to their European and United States peers, he said. Those macro conditions as well as competitive pressures were likely to see other banks in the market follow suit in cutting rates, although the extent to which they did so would be based on their funding mix.
An economist at Deutsche Bank, Darren Gibbs, said the current position of banks suggested that those cuts were unlikely to reverse suddenly.
“The general impression is that banks are well-funded to the end of the year, so they are not under immediate pressure to raise money and face funding costs that put pressure back onto mortgage rates.”
However, homeowners were unlikely to rush to switch, according to Gibbs, with floating rates still attractive relative to fixed.
That is backed by the latest figures from the Reserve Bank which showed 58 per cent of homeowners were on floating mortgages in September, a level that has remained consistent this year.