Market forces are doing part of the work without requiring the central bank to move as aggressively
New Zealand's largest bank has stepped ahead of its peers, lifting mortgage rates by 20 basis points at a moment when the Reserve Bank is tightening its grip on an inflation that has grown restless. The move reflects a broader reckoning between the cost of money and the pace at which institutions choose to share that burden with borrowers. As the Official Cash Rate climbs toward neutral ground, the gap between what markets already knew and what households are only now beginning to feel is quietly closing.
- ANZ has pushed all its mortgage rates 20 basis points above competitors, with two-year fixed rates now at 5.5% — a full point higher than just seven months ago.
- The Reserve Bank is signalling faster, steeper OCR hikes than previously forecast, aiming to bring the rate from 2.25% to roughly 2.8% before year's end.
- Markets had already priced in the aggressive tightening before the central bank's formal announcement, meaning the shock landed on traders weeks ago — but is only now reaching borrowers.
- Banks have been slow to pass wholesale rate increases on to customers, compressing their spreads to historic lows, but ANZ's move is expected to break the logjam and prompt rivals to follow.
- Even as mortgage costs rise, ANZ posted a net interest margin of 2.4% and a return on equity of nearly 14% in the March quarter, keeping questions about profit and fairness very much alive.
ANZ lifted all its mortgage rates by 20 basis points on Thursday, placing itself above competitors in a move that signals a broader shift in New Zealand's lending landscape. The bank was more selective with savers, raising only its 270-day and one-year deposit rates by 15 basis points each, while leaving longer-term savings rates untouched in a band between 4% and 4.8%. Two-year mortgage rates now stand at 5.5%, a full percentage point above where they were in November.
The decision follows the Reserve Bank's recent signal that it intends to raise the Official Cash Rate more aggressively than previously indicated — from its current 2.25% toward 2.8% by year's end. That level would bring monetary policy closer to neutral, neither stimulating nor restraining the economy. Notably, financial markets had already anticipated the shift, pricing in steeper hikes well before the central bank's formal Monetary Policy Statement, which meant wholesale rates barely moved when the announcement came.
What has moved more slowly is the transmission of those wholesale costs to everyday borrowers. The Reserve Bank itself acknowledged that banks had been reluctant to raise retail rates in step with market moves, partly due to uncertainty, and partly because subdued term deposit rate increases reduced pressure to lift mortgage rates. Industry observer David Chaston suggested ANZ's move would likely prompt other major banks to act similarly.
The Reserve Bank's chief economist noted that rising mortgage rates are already doing some of the central bank's work, cooling demand and easing inflation without requiring even sharper OCR increases. Meanwhile, ANZ's March quarter results — a net interest margin of 2.4% and return on equity of nearly 14% — ensure that questions about how much of the rate environment's gains are being shared with customers will not fade quietly.
ANZ moved on Thursday to lift all of its mortgage rates by 20 basis points, pushing them above what competitors are currently charging. The country's largest bank, however, took a more restrained approach to savings rates, raising only two of them while leaving the rest untouched.
The bank increased its 270-day savings rate to 3.55% and its one-year rate to 3.85%, each up 15 basis points. Everything beyond the 18-month mark stayed where it was, sitting in a band between 4% and 4.8%. The mortgage move was more sweeping. Two-year rates, for instance, now sit at 5.5%—a full percentage point higher than they were in November, when they stood at 4.5%.
The timing of ANZ's decision follows the Reserve Bank's signal last week that it plans to raise the Official Cash Rate more forcefully and sooner than it had previously indicated. The central bank now expects the OCR to climb from its current 2.25% to around 2.8% by the end of the year. At 2.25%, the rate is considered accommodative—loose enough to stimulate borrowing and spending. The projected path would bring it closer to neutral, the level at which monetary policy neither encourages nor restrains economic activity.
What's striking is that the market had already priced in these more aggressive moves before the Reserve Bank formally announced them. Traders and investors, watching inflation pressures mount from Middle East conflict, had been betting on steeper OCR increases for weeks. When the central bank published its quarterly Monetary Policy Statement, therefore, wholesale interest rates barely budged. The surprise had already been absorbed.
Yet there is a lag between what happens in wholesale markets and what banks pass on to customers. The Reserve Bank itself noted in its statement that banks have been slow to lift retail rates in line with wholesale moves. The spread between what banks pay for funds and what they charge customers has compressed to historic lows. The central bank's explanation was cautious: the environment is uncertain and volatile, so banks have been reluctant to move too quickly. Additionally, because banks weren't raising term deposit rates much, they had less pressure to lift mortgage rates.
David Chaston, publisher of Interest.co.nz, suggested that ANZ's move would likely trigger similar action from other major banks. The question now is whether the rest of the sector will follow suit, and how quickly. The Reserve Bank's chief economist, Paul Conway, observed that higher mortgage rates have already given the central bank some breathing room. Market forces are doing part of the work—dampening demand and therefore inflation—without requiring the central bank to move as aggressively as it otherwise might.
Behind all of this sits a banking sector that remains highly profitable. In the March quarter, ANZ New Zealand reported a net interest margin of 2.4%, a return on equity of 13.9%, and a return on assets of 1.3%. The question of whether banks should be passing more of their wholesale rate gains to customers, and whether they will, remains open.
Citas Notables
Banks have been slow to pass wholesale rate increases to customers, with the spread between retail and wholesale rates at historic lows— Reserve Bank, in its Monetary Policy Statement
Higher mortgage rates have given the central bank breathing room, with market forces dampening demand and inflation— Paul Conway, Reserve Bank chief economist
La Conversación del Hearth Otra perspectiva de la historia
Why does ANZ raising mortgage rates matter if the Reserve Bank is the one actually setting policy?
Because there's a gap between what the central bank does and what customers actually experience. The Reserve Bank moves the OCR, but banks decide how much of that change to pass on. ANZ just signaled they're moving faster—that matters for anyone with a mortgage.
But the Reserve Bank said banks have been slow. Isn't ANZ just catching up?
Partly, yes. But ANZ is now above competitors, which suggests they're not just catching up—they're leading. That's a choice about margins and market positioning.
The article mentions historic lows in the spread between retail and wholesale rates. What does that mean for customers?
It means banks are squeezing their own profit margins less than they used to. They're not passing all the wholesale increases through, which keeps customer rates lower than they might otherwise be. But it also means there's less room for banks to absorb costs.
So why hold savings rates mostly flat when mortgage rates are rising?
Because they can. Deposit rates are sticky—people don't shop around as much for savings accounts. Mortgage customers do. Banks raise mortgages to stay competitive there, but they can afford to be slower on deposits.
What happens next?
Other banks will likely follow ANZ's lead on mortgages within days. The real question is whether the Reserve Bank's breathing room—the fact that markets are already doing the work—means they can raise the OCR less aggressively than they're signaling. That would change everything.