Quick benefit for home-buyers in cut

By BRIAN FALLOW

Mortgage rates have started falling after Reserve Bank Governor Alan Bollard yesterday cut the official cash rate and indicated that another cut is on the cards.

Westpac has cut its floating rate from 7.5 to 7.35 per cent from tomorrow for new borrowers, and from the end of the month for existing ones.

The Bank of New Zealand lowered its variable rate from 7.59 to 7.35 per cent from Monday for new borrowers and June 23 for existing ones.

BankDirect, the phone and internet banking branch of the ASB Bank, cut its variable rate from 7.3 to 6.99 per cent, immediately for new borrowers and from the end of the month for existing ones.

Kiwibank reduced its floating and one-year fixed rates by 30 basis points, taking its floating rate down to 6.65 per cent. That would save about $30 a month on a $125,000 mortgage.

The other big banks are likely to follow suit for competitive reasons and because they were already on fat margins before Dr Bollard cut the official cash rate from 5.5 to 5.25 per cent yesterday.

With floating mortgage rates of 7.55 or 7.6 per cent, the banks have had a margin of around 2.4 percentage points over the cost of the 90-day wholesale money from which they largely make their variable home loans.

Dr Bollard started cutting interest rates on April 24 when he became convinced that growth had peaked and the economy was slowing.

"The slowdown mainly reflects the rapid appreciation of the exchange rate over the past 18 months, leaving the export sector more exposed to the soft world economy," he said yesterday.

He expects growth to slow to 2 per cent in the year ahead, then recover.

Dr Bollard expects to make some further small reduction in interest rates if the economy slows and inflation pressures ease, as forecast.