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FLOATING mortgage rates are heading down and look set to fall even further this year.
State-owned Kiwibank led the charge, knocking its floating mortgage rate down to 6.4 per cent, well under the big players which have been charging about 7.3 per cent.
Big player ANZ Bank cut its floating rate from 7.35 per cent to 7.1 per cent. On a $100,000 home loan, that means monthly repayments drop by $16. 10.
The rates were cut after Reserve Bank governor Alan Bollard trimmed the official cash rate by 25 basis points to 5 per cent, just a notch about the Australian official rate of 4.75 per cent.
The cash rate has been cut three times since April, when it was 5.75 per cent.
Union and business leaders slammed the cut as too modest they wanted a half a per cent cut to boost the economy.
The Council of Trade Unions said the 25-basis-point cut was too small to take the pressure off a high New Zealand dollar.
Kiwibank said on an average $120,000 loan its new 6.4 per cent rate would save borrowers about $800 a year compared with a 7.1 per cent rate from a large bank, though Kiwibank remains a minnow with just $500 million out in home loans.
The central bank had to offset the effects of relatively robust domestic activity and inflation, and the weaker activity and inflation in the export sector.
Most, but not all, bank economists expected the central bank to make another quarter-per cent cut this month which would tip floating mortgage rates to less than 7 per cent for the big banks.
Short-term deposit rates are also expected to come down.
Westpac Bank economists said they still expected a further 25-basis point cut in the official cash rate in September "to be driven by further New Zealand dollar appreciation and continued softness ill the export sector."
"The Reserve Bank has left the door ajar for a further easing," Westpac said.
Citigroup held to its view that the rate cut was the trough, with economic risks abating as SARS, drought and the power crisis faded. As well, housing and construction remained robust.