Pausing while pass through of interest rate cuts catches up

Although the OCR has fallen 225bps since August, the latest data available shows the average rate borrowers were paying had only fallen around 50bps in May, Satish Ranchhod, Westpac senior economist says.With about 90% of New Zealand mortgages fixed for a period, many borrowers are still on the relatively high interest rates that were on offer in recent years.

In addition, earlier this year many borrowers rolled on to shorter term fixed rates (up to six months) while they waited to see if longer term interest rates would continue to fall further.

As shorter term rates have tended to be more expensive, that’s delayed the full impact of rate cuts for many borrowers.

“While the pass through of rate cuts has been gradual to date, it will pick up through the back part of the year,” Ranchhod says.