Mortgage rates fall after surprise interest rate cut

3.30 pm

Four major banks have today cut their mortgage rates in response to the Reserve Bank's unexpected half percentage point cut to the Offical Cash Rate (OCR).

Reserve Bank Governor Don Brash said the unscheduled adjustment, from 5.75 per cent to 5.25 per cent, was primarily because of last week's terrorist attacks on the United States.

ASB was the first to announce a cut, lowering its variable home lending rate to 7.20 per cent from 7.70 per cent.

WestpacTrust, National Bank and ANZ have all since cut their variable rates by the same amount.

ASB said in a statement its cut took effect immediately for new home loans and from October 8 for existing variable rate loans.

On a 20-year $100,000 mortgage, the cut would equate to a reduction in repayments of $30.52 a month.

Earlier today, Dr Brash said it seemed more likely now that the current slowdown in the world economy would worsen.

"In these circumstances, New Zealand's short-term economic outlook would be adversely affected, although any downturn might well be relatively short-lived."

Dr Brash said the Reserve Bank's focus was still on keeping core inflation in check.

"New Zealand business and consumer confidence will be hurt by recent international and domestic developments, and today's move is a precaution in a period of heightened uncertainty.

"Our present judgment is that interest rates do not need to be as high as previously to achieve this."

The next review of the OCR is scheduled for October 3.

The Council of Trade Unions welcomed the Reserve Bank initiative.

CTU economist Peter Conway said the unscheduled review was a much-needed tonic for the economy.

"Although economic indicators in New Zealand are generally favourable, the extraordinary events of last week have created considerable economic uncertainty."

Business New Zealand Chief Executive Simon Carlaw said New Zealand's economic well-being was linked closely with that of the US and the Reserve Bank's action was timely.

"It will also go some way towards counteracting any loss of business confidence as a result of recent events in Australia, " Mr Carlaw said.