ASB has become to first bank to reduce mortgage rates after the Reserve Bank this afternoon cut the official cash rate by 0.5 percentage points to a record low one per cent.
ASB’s variable home loan rate has been reduced by 0.50 per cent to 5.20 per cent.
The bank's Orbit home loan rate is cut 0.45 per cent to 5.30 per cent.
The changes are effective next Wednesday, August 14, for new customers and the following Wednesday for existing customers.
ASB has also lowered its two-year fixed home loan rate by four basis points to 3.75 per cent. This fixed rate change is effective tomorrow.
But the news is not so good for savers.
ASB is reducing the interest paid on its most popular retail savings account, Savings on Call, by 0.05 per cent.
"We believe our new lower rates provide a fair and considered outcome for borrowers while also balancing the needs of our savings customers,” says Craig Sims, ASB's executive general manager of retail.
Other banks have followed suit with rate cuts.
Westpac has cut its Choices Floating rate by 0.45 per cent to 5.34 per cent and the revolving Choices Everyday rate has been reduced by 0.40 per cent to 5.44 per cent.
The base interest for Westpac's Simple Saver, Online Saver, Cash Management and Ready Access accounts have been reduced by 0.05 per cent.
BNZ's floating rate drops to 5.30 per cent and its two-year fixed rate is reduced to 3.75 per cent, while KiwiBank is also dropping mortgage rates, and rates for savers.
Announcing the cut in the OCR, the Reserve Bank said a lower OCR is necessary to continue to meet its employment and inflation objectives.
"Employment is around its maximum sustainable level, while inflation remains within our target range but below the 2 per cent mid-point. Recent data recording improved employment and wage growth is welcome," the bank said.
"GDP growth has slowed over the past year and growth headwinds are rising. In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets," it said.
The central bank said global economic activity continues to weaken, easing demand for New Zealand’s goods and services.
"Heightened uncertainty and declining international trade have contributed to lower trading-partner growth. Central banks are easing monetary policy to support their economies. Global long-term interest rates have declined to historically low levels, consistent with low expected inflation and growth rates into the future," it said.
"In New Zealand, low interest rates and increased government spending will support a pick-up in demand over the coming year. Business investment is expected to rise given low interest rates and some ongoing capacity constraints. Increased construction activity also contributes to the pick-up in demand," the Reserve Bank added.
"Our actions today demonstrate our ongoing commitment to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level."