KEY POINTS:
ASB has moved quickly to cut its two year fixed home lending rate, after Reserve Bank Governor Alan Bollard cut the Official Cash Rate (OCR) to 8 per cent from 8.25 per cent.
ASB has lowered its two year fixed home lending rate 0.25% to 8.95%.
Dr Bollard signalled last month he would cut in September but economists said he went earlier due to escalating concern of deepening recession.
It is the first cut to the OCR in five years.
Dr Michael Cullen today welcomed the cut but said it would not necessarily flow directly to mortgage holders as banks faced higher costs for offshore borrowing as a result of the global credit crunch in the wake of the collapse of the United States housing market.
Kiwibank had already indicated it would not lower its mortgage rates further at this stage, before ASB's late announcement.
But Dr Cullen said if Dr Bollard had not cut rates there may have been an increase in mortgage rates.
"Without the bank acting there was a higher risk of interest rates going up for homeowners because of international factors," he told reporters.
"What they can expect out of this is lower mortgage rates than would otherwise be the case."
National's finance spokesman Bill English said the cut would provide some relief to homeowners, but it also signalled the economy was in trouble.
"Worryingly the decision to cut interest rates is a reflection of the fact that the economy has not grown all year. Unemployment is now likely to become a bigger issue."
He said if Labour rolled out big spending election promises it could jeopardise further cuts.
- NZPA, NZ HERALD STAFF
