BNZ trims mortgage rates after US Fed decision

The BNZ has further tweaked its home loan rates after the US Federal Reserve cut benchmark interest rates overnight.

The bank has cut its one-year fixed housing rate by 0.16 basis points to 6.29% and its two-year fixed rate by 0.10 points to 5.79%.

The move came after the Fed kicked off what is expected to be a steady easing of monetary policy with a larger-than-usual reduction in borrowing costs that followed growing unease about the health of the US job market.

“The committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” policymakers on the US central bank’s rate-setting committee said in their latest statement.

The rate cut is the Federal Reserve’s first in more than four years.

Policymakers expect the Fed’s benchmark rate to fall by another half of a percentage point by the end of this year, another full percentage point in 2025 and by a final half of a percentage point in 2026 to end in a 2.75% to 3% range.

Local banks lowered their lending rates both before and after the Reserve Bank of New Zealand cut its official cash rate (OCR) last month.

The OCR was cut 25 basis points from 5.5% to 5.25%. It is the first cut since March 2020 and a positive move for homeowners under pressure from high interest rates.

All the major banks – ASB, ANZ, Westpac, BNZ and Kiwibank – had been cutting their interest rates before that decision, as wholesale rates dropped and markets started pricing in cuts to the OCR this year.

Back in the US, even though inflation “remains somewhat elevated”, the Fed statement said policymakers chose to cut the overnight rate to the 4.75%-5% range “in light of the progress on inflation and the balance of risks”.

The Fed “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals”, with attention to “both sides of its dual mandate” for stable prices and maximum employment.

Fed chair Jerome Powell will hold a press conference later on Wednesday to discuss the policy decision and the economic outlook.

The Fed’s policy meeting this week was its last before voters go to the polls in what is expected to be a close US presidential election on November 5.

The size of the initial cut will likely raise questions about the Fed’s strategy, and whether policymakers were merely trying to account for the fast decline in inflation since last year or address concerns among some officials that the US job market may be weakening faster than desired or needed to ensure inflation fully returns to the Fed’s 2% target.

- Additional reporting by AAP