More banks are expected to cut their mortgage rates after ANZ and National dropped their one-year rate to the lowest it has been in 17 years.
As of today, the banks' one-year fixed rate has been slashed 40 basis points to 5.25 per cent, the lowest "carded" rate available.
That is beaten only by Kiwibank's special 4.99 per cent rate, which requires customers to have at least 30 per cent equity in the property.
New Zealand Institute of Economic Research principal economist Shamubeel Eaqub expected other banks would make similar moves as they "typically move in flocks".
Eaqub said the move was a "relief" for the small percentage of people who would benefit, but would not have a great impact on the overall economy.
He said the move follows the Reserve Bank's decision to hold the official cash rate - and Eaqub believes it will remain at 2.5 per cent for some time.
"So the wholesale cost of funding has come down and the banks are passing on the savings."
ANZ retail managing director Kerri Thompson said ANZ was taking advantage of a window for cheaper longer term wholesale interest rates, and passing it on to customers.
"We're not sure how long this window will remain open," she said. "We hope to be able to keep it open for a while but we'll be reviewing it on a daily basis."
However, the banks' six-month term deposit rates will also be cut by 30 basis points to 4 per cent today. Other savings products are unaffected.
Eaqub said about a third of households had a mortgage, but most people had a floating-rate mortgage, rather than a fixed rate one, so the changes would only affect a small proportion of people.
He expected term deposit rates to also drop, which was good for borrowers, but not for savers.
But Eaqub said it was likely more changes would not be made in the foreseeable future.
"My view is that interest rates by and large will be around current levels for the foreseeable future."
The impact these reduced fixed home rates would have on the overall economy were minor, and Eaqub warned there remained little growth in the economy and there were still a lot of risks.
ANZ National's move came a day after Southland lender SBS and its sister bank HBS dropped their three- and five-year home loan interest rates to market-leading lows.
The banks now offered a five-year rate at 6.20 per cent, down from 6.90 per cent, and a three-year fixed rate of 5.85 per cent.
The move in interest rates come ahead of next month's Reserve Bank review of the official cash rate.
The market had priced in as much as an 80 per cent chance that the central bank would cut rates to a new low of 2.25 per cent, but expectations have since been pared back.
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