Photo: IGOR STEVANOVIC / SCIENCE PHOTO
People with money in term deposits may be getting a better deal than normal at the moment.
On Monday, Kiwibank said it was making adjustments to its six-month and one-year term deposits. Its six-month rate was lifting by 20- basis points, to 5.34 percent for people with at least $10,000 invested. Its one-year rate was dropping by 25 basis points, to 4.85 percent for those balances.
The six-month rate is only a limited offer, until 25 November.
Infometrics chief forecaster Gareth Kiernan said six-month and 12-month term deposit rates had fallen by 11 to 19 points less overall since June than home loan fixed rates had.
He said that suggested there could be more downward pressure on them to come. "For terms 18 months and longer, term deposits have fallen four to 18 points more."
Term deposit rates expected to drop
He said banks needed to source a certain percentage of their funds domestically and there needed to be "broad alignment" between the terms of their lending and funding.
"Because we've seen borrowers heavily concentrating their demand for lending at the shorter end of the curve over the last few months, in anticipation of further interest rate cuts by the Reserve Bank, banks might be needing to attract more term deposits for lengths up to a year to meet their capital requirements - hence not cutting their shorter term deposit rates quite as fast.
"If their margins are being squeezed, the alternative might be to not keep pushing the shorter-term fixed mortgage rates down quite as quickly - although with overall lending volumes still relatively subdued, there's probably an element of pressure in rate-setting to try and attract borrowers to meet targets or maintain market share."
David Cunningham chief executive of mortgage advice firm Squirrel, said term deposits tended to fall more slowly than home loan rates.
Home loan rates were often more visible and newsworthy, he aid. Lower home loan interest rates were also likely to drive increased activity. There were also wide margins for home loan rates at the star of the easing cycle so there was more room to move.
On the other hand, retail deposits provided a high proportion of bank funding so it was important for banks to maintain their customer balances. Competition would keep term deposit rates a bit higher, he said.
"Banks have moved specials to 6 months (previously 1 year was the highest rate), so they get to reprice most of their book relatively quickly."
He said banks seemed to be paying about 1 percent more than the wholesale rates for six-month and 12-month term deposits, which was unusually high.
"Logically, term deposit rates should be at least 0.5 percent lower for the preferred terms of six and 12 months. Home loan rates would also be about 0.5 percent lower, if TD rates dropped by that amount."