Kiwibank first to make rate change after OCR decision

Kiwibank has implemented changes to its term deposit rates, marking the first significant adjustment following the Reserve Bank’s recent decision regarding the official cash rate (OCR).

Kiwibank Adjusts Deposit Rates

The bank announced on Thursday that it is increasing its nine-month term deposit rate by 15 basis points, bringing it to 3.55%. The one-year rate has been raised by five basis points to 3.9%.

These movements follow a Wednesday decision by the Reserve Bank to maintain the OCR at 2.25%. While the rate remained steady, the bank signalled that future increases could arrive earlier and more rapidly than previously anticipated later this year.

Did You Know? Despite the decision to hold the OCR at 2.25%, half of the monetary policy committee believed that rates should have been increased this week.

Market Implications and Significance

Gareth Kiernan, chief forecaster at Infometrics, characterized these rate shifts as small. However, he noted that the unexpectedly close decision by the Reserve Bank has influenced market behavior.

Swaps pricing for future meetings has lifted by 5-10 basis points. This shift suggests a higher level of certainty—within a volatile environment—that the bank will consistently lift the OCR throughout most of the remainder of the year.

According to Kiernan, financial markets had largely expected these rises. The confirmation from the bank, combined with the narrow margin of the decision, has increased market confidence and ensured these expectations are more fully priced in.

Expert Insight: Samantha Carter observes that the tension within the monetary policy committee serves as a critical signal to the market. When a decision is this closely split, it often accelerates the way commercial banks and investors price in future risk, potentially leading to preemptive rate adjustments before official policy changes occur.

Future Outlook for Borrowers and Savers

The trajectory for interest rates remains a focal point. Swap rates had decreased by 15-20 basis points over the previous fortnight, which may provide some room for further wholesale rate rises.

Depending on these movements, there could be a possible next step where banks pass these wholesale increases on to either mortgage or term deposit rates.

Current data from the Reserve Bank highlights a significant upward trend in borrowing costs. Two-year home loan rates, which hit a low of 4.5% last year, are currently hovering around 5.2%.

Frequently Asked Questions

What specific changes did Kiwibank make to its rates?

Kiwibank increased its nine-month term deposit rate by 15 basis points to 3.55% and its one-year rate by five basis points to 3.9%.

The Kiwibank Business Breakdown: What's the OCR?

What was the Reserve Bank’s decision on the OCR?

The Reserve Bank kept the OCR at 2.25% on Wednesday, although it indicated that rate rises may occur earlier and more quickly than expected later in the year.

How have two-year home loan rates changed recently?

Reserve Bank data shows that two-year home loan rates have risen from a low of 4.5% last year to approximately 5.2%.

How do you think these shifting rate signals will impact your financial planning for the rest of the year?