RBA rate hike won’t damp deposit rate war

The RBA became the first major developed central bank to begin tightening monetary policy when it boosted its benchmark rate 25 basis points to 3.25% from a 50-year low, after Australia avoided falling into recession in the worst global downturn since World War II.

Still, the prospect of higher rates across the Tasman will not take the glean from the deposit rate war in New Zealand, where banks are being forced to offer high yields as they are forced to source more of their funds locally.

New Zealand's "deposit rates are higher than in Australia, which is more a reflection of the intense competition for funding which has pushed deposit rates up," said Khoon Goh, senior markets economist at ANZ National Bank. Local "retail deposit rates should remain more attractive" than Australia's.

Banks were forced to cut their lending margins this year as they sought to fund their operations with increased retail deposits after access to offshore finance dried up amid the credit crunch and financial crisis last year.