Some banks passed on some of the Reserve Bank's bold 50 basis point rate cut today to their customers.
The central bank's move to cut its official cash rate by more than expected was seen as an attempt to jolly banks along and address a lag in the impact of policy.
In cutting the official cash rate by 50 basis points to 7.5 percent, Reserve Bank governor Alan Bollard said he was giving mortgage lenders "a bit of room" by front loading the current easing cycling.
He said he didn't expect to see any "stickiness" in mortgage rates.
Some banks moved to cut floating mortgage rates by the full 50 basis points, but their floating rates remain at historically high margins above the 90-day bank bill rate and most lending is on fixed rate mortgages.
Kiwibank cut its floating rate to 9.7 percent and had said this week it was still making money when the floating rate was 10.2 percent before today's central bank move. BNZ and Westpac cut their floating rate to 10.45 percent today.
Kiwibank cut its two-year fixed rate by 36 basis points to 8.49 percent. ASB cut its two-year rate to 8.90 percent from 8.95 percent. BNZ's new two-year classic rate of 8.79 percent compares with 8.99 percent earlier this week on the interest.co.nz website.
ANZ National, which announced a $960 million profit in the nine months to June 30, is yet to move.
"The RBNZ's focus today was squarely on the interest rates households are paying," ASB said.
Even with declines in mortgage rates over recent months, the average mortgage rate households are paying will continue to rise because fixed rare mortgages are the norm.
Analysts said there was a mortgage war led by BNZ two years ago and the two-year rate fell to around 7.95 percent. Anyone with a two-year fixed mortgage about to mature still faces higher mortgage costs.
But two-year fixed mortgage rates were nudging around 9 percent before the central bank started its easing cycle in July.
ASB said the effective mortgage rate was a reminder of the lags in the system. BNZ's head of research Stephen Toplis said that the two-year swap rate from which two-year fixed mortgages are funded only fell around 18 basis points today.
He said at one time banks funded marginally above that swap rate but they now paid a bigger margin above swap rates for funding.
"Anything would be appreciated," Michael Barnett, chief executive of the Auckland Chamber of Commerce, said.
He said 40 percent of small businesses borrowed money against their property.
Dr Bollard told Bloomberg Television that bank funding costs had increased significantly because of the global credit crunch, which meant a smaller cut of 25 basis points may not have been enough for banks to pass on a rate cut to borrowers.
"This time it was important that the banks did have room to cut rates," he said.
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