Kiwibank lifts mortgage rates as all eyes go on next Official Cash Rate (OCR) move

Kiwibank, one of New Zealand’s major banks, has increased its mortgage and deposit rates following the release of strong GDP growth data. The bank’s decision makes it the first major bank to raise interest rates since the positive GDP results were announced last week.

The surprise GDP growth of 0.9% in the June quarter, coupled with revised figures from earlier quarters indicating that the country was not in a recession as feared, has prompted economists to warn that interest rates are likely to rise or remain stronger for longer. This poses a challenge for the Reserve Bank as it aims to cool the economy and bring inflation back on target.

Kiwibank has raised its standard rates for one-year and two-year mortgages to 8.15% and 7.99% respectively, up from 7.99% and 7.89%. The two-year special rate for borrowers with more than 20% equity has also increased from 6.89% to 6.99%. In addition, deposit rates at the bank have been boosted by 20 basis points.

Westpac, another major bank in New Zealand, has also increased its nine-month deposit rate to the highest among its competitors, at 6%.

While these rate increases may concern households grappling with the rising cost of living, they present an opportunity for individuals to ensure that their money is working for them. Sarah Hearn, Westpac NZ’s general manager of product, sustainability, and marketing, emphasizes the importance of making smart financial decisions during this period.

It is worth noting that Westpac has made no changes to its home loan rates, while market pricing for whole rates rose last week following the positive GDP news. However, banks also face rising pressure due to increasing international borrowing costs, which still make up a significant portion of their funding.

The recent decision by the US Federal Reserve to hike its interest rate has led to an increase in US Treasury yields. These higher yields impact the international borrowing costs for local banks. Short-term Treasury yields in the US have risen by 5-10 basis points, reaching their highest level since 2006.

Looking ahead, the Reserve Bank of New Zealand is set to meet on October 4 to consider the Official Cash Rate (OCR). Currently at 5.5%, the OCR may experience another rise to 5.75% by the end of the year if the stronger economy continues. However, economists note that the upcoming election on October 14 and the availability of third-quarter inflation and labor market data will likely influence the timing of any future rate changes.

Despite the potential for further rate hikes, some economists believe that the New Zealand economy’s resilience may require interest rates to remain at elevated levels for a prolonged period in order to achieve the target inflation rate. The exact path of future rate changes remains uncertain, but Kiwibank’s recent actions indicate a shift towards higher rates in response to the robust GDP growth.