Reserve Bank data shows while fixed-term rates have dropped significantly this year, floating rates have remained high. Photo: RNZ
Kiwibank is cutting its floating home loan rates by 50 basis points, from 8.25 percent to 7.75 percent.
The Reserve Bank will update the official cash rate tomorrow, and calls have been growing for a drop of 50 basis points, which would take the OCR to 4.75 percent.
Its data shows that while fixed-term rates have dropped significantly this year, floating rates have remained high.
Borrowers were taking out floating rates of 8.45 percent on average in September, compared to a peak of 8.6 percent.
In comparison, the average one-year rate had dropped from a peak of 7.76 percent to 6.9 percent, and rates have fallen further since.
Kiwibank chief customer officer Elliot Smith said lowering rates quickly was crucial to provide relief to borrowers.
"Many market commentators, including our Kiwibank economics team, are calling for a 50 basis-point cut to the OCR on Wednesday to support the economy."
Kiwibank expected its interest-rate reduction to result in total savings of $18 million a year for more than 35,000 business banking and home loan customers.
Although only about 10 percent of home loan lending is floating, a significant proportion of business lending was, Smith said.
Fixed terms had dropped faster because the wholesale rates that largely drove them had fallen more quickly.
"We might get it wrong tomorrow, but we certainly see it's a good risk for us to take to continue to try to differentiate in the market."
Variable rates should mirror the official cash rate track from here, Smith said.
"They need to. A larger proportion of business lending is priced off variable rates so for the good of those businesses, it needs to come down in a reasonably rapid way."