When a central bank raises its benchmark rate, it is asking the whole economy to feel the change — borrowers and savers alike. In New Zealand this week, the major banks answered only half that call, swiftly lifting mortgage rates by the full quarter-point while offering savers a fraction of the same movement. The Reserve Bank, watching the asymmetry unfold, spoke plainly: a monetary policy signal that reaches only one side of the ledger is a signal half-sent, and an economy half-heard.
Major banks pass on full OCR increase as Reserve Bank criticizes deposit rate lag
Banks widened their margins by raising mortgage rates faster than deposit rates
Mark
So the banks raised mortgage rates by 25 basis points but only raised deposit rates by 15? That seems like they're just taking the difference as profit.
Mimi
That's essentially what happened, yes. When the OCR goes up, banks face higher costs on the wholesale side, but they can choose how much of that to pass to borrowers and savers. They chose to pass it all to borrowers and keep most of it for themselves on the deposit side.
Luke
But we should be careful here—the source doesn't say the banks explicitly chose to widen margins. It's possible they're responding to competitive pressure or funding constraints we're not seeing. The Reserve Bank's criticism is about the pattern, not necessarily about intent.
Mark
Fair point. But the Reserve Bank seems to think this matters for how the economy actually works, right?
Mimi
Exactly. If savers aren't getting higher returns, they don't get the signal to save more. If borrowers are paying more but savers aren't earning more, the interest rate increase doesn't do its job of cooling the economy evenly.
Luke
Though we should note—the source quotes Olsen explaining the theory, but it doesn't show us actual evidence that this asymmetry is slowing the economy or causing real harm. It's a reasonable concern, but it's still a concern, not a proven problem.
Mark
So what happens next? Does the Reserve Bank have tools to force the banks to raise deposit rates?
Mimi
The source doesn't say. It's criticism for now, but the fact that the central bank is calling it out publicly suggests there could be pressure down the line.
Luke
And that's the honest answer—we don't know what comes next. The story shows us what happened and why the Reserve Bank thinks it matters. The rest is still unfolding.
Der Puls
- All five of New Zealand's major banks raised variable mortgage rates by 25 basis points within two days of the OCR increase — a near-instant transmission of cost onto borrowers.
- Savers received far less: Kiwibank passed on only 15 basis points to term deposit rates, and some ASB products received as little as 10, quietly widening bank profit margins in the process.
- The Reserve Bank broke from its usual restraint and publicly criticised the imbalance, warning that lopsided rate pass-through distorts the very mechanism monetary policy depends on to slow spending and inflation.
- Economist Brad Olsen put the stakes plainly — when only borrowing costs rise but saving becomes no more attractive, the behavioural signals that interest rates are meant to send get muddled before they reach the public.
- The central bank's rare public rebuke now hangs over future rate cycles, raising the question of whether regulatory pressure will eventually force banks to treat borrowers and savers with equal urgency.
When a central bank raises its benchmark rate, it is asking the whole economy to feel the change — borrowers and savers alike. In New Zealand this week, the major banks answered only half that call, swiftly lifting mortgage rates by the full quarter-point while offering savers a fraction of the same movement. The Reserve Bank, watching the asymmetry unfold, spoke plainly: a monetary policy signal that reaches only one side of the ledger is a signal half-sent, and an economy half-heard.
New Zealand's major banks moved quickly this week to pass the Reserve Bank's 25 basis point OCR increase onto mortgage holders, but showed far less haste when it came to rewarding savers — a gap that drew an unusually direct rebuke from the central bank itself.
Westpac and ANZ lifted variable mortgage rates on the same afternoon the decision was announced. Kiwibank, BNZ, and ASB followed the next morning, each passing the full quarter-point through to variable home loan products. Kiwibank's variable rate reached 6.25 percent, with changes taking effect mid-September across the major lenders.
The deposit side told a different story. Kiwibank raised its 90-day saver rate by only 15 basis points, and some ASB products received increases as small as 10. The pattern was consistent: banks absorbed the full cost on the lending side while protecting their margins by offering savers considerably less.
The Reserve Bank flagged the disparity directly in its monetary policy statement, describing the pass-through to term deposit rates as "more limited" than warranted. The criticism had a precise logic behind it: when mortgage rates rise faster than deposit rates, banks pocket the difference, but they also muddy the economic signal that rate policy is designed to send. Higher borrowing costs should curb spending; higher savings rates should encourage people to hold rather than spend. When only one side moves, the message loses its force.
Infometrics economist Brad Olsen explained to RNZ that this asymmetry undermines the transmission mechanism monetary policy depends on — the chain of cause and effect that is supposed to ripple from the Reserve Bank's decision all the way through to household behaviour. Whether the central bank's public criticism will be enough to shift how banks approach deposit rates in future rounds remains an open question, but the tension between institutional profit and policy effectiveness is now plainly in view.
New Zealand's major banks moved swiftly this week to pass along the Reserve Bank's latest interest rate increase to borrowers, but they moved far more cautiously when it came to savers—a gap that has drawn sharp criticism from the central bank itself.
The Official Cash Rate rose by 25 basis points on Wednesday. By afternoon, Westpac and ANZ had already lifted their variable mortgage rates to match. On Thursday, Kiwibank, BNZ, and ASB followed suit, each raising variable home loan rates by the full quarter-point. Kiwibank's variable rate climbed to 6.25 percent, while its revolving loan rate moved to 6.3 percent. BNZ and ASB both confirmed they would pass the full increase through to their variable housing products, effective mid-September.
But the picture shifted sharply when it came to deposit rates. Kiwibank increased its 90-day saver rate by only 15 basis points, to 2.75 percent, and its 32-day notice rate by the same amount, to 2.2 percent. ASB lifted its Savings Plus product by 25 basis points but its Headstart rate by just 10. The pattern was clear: banks were willing to absorb the full cost increase on the lending side, but they were protecting their margins by passing less of it to the people saving with them.
The Reserve Bank noticed, and it said so plainly. In its monetary policy statement, the central bank flagged what it called a "more limited pass through of higher wholesale interest rates to term deposit rates." The criticism carried real weight: when banks don't raise deposit rates in line with what they're charging borrowers, funding becomes cheaper for the banks themselves. The Reserve Bank argued that a more balanced approach—raising both mortgage rates and deposit rates equally—would actually work better for the economy as a whole.
Brad Olsen, principal economist at Infometrics, explained the mechanics to RNZ. When mortgage rates rise faster than deposit rates, banks widen their profit margins, which distorts the signal that interest rate policy is supposed to send. Higher borrowing costs should discourage spending and investment; higher savings rates should encourage people to save rather than spend. But if only one side of that equation moves, the message gets muddled. "If both retail mortgage rates and term deposits were seeing more equal pass-through, the signalling from interest rates would be more balanced," Olsen said. The Reserve Bank's point, he added, was that this kind of asymmetry undermines the whole transmission mechanism of monetary policy—the way rate changes are supposed to ripple through the economy and actually change behavior.
For now, the banks have made their moves. Whether the Reserve Bank's public criticism will prompt them to adjust their approach to deposit rates in future rounds remains to be seen. But the tension is clear: the central bank wants the cost of money to move in tandem across the economy, while the banks have shown they'll use rate-setting flexibility to protect their bottom line.
Bemerkenswerte Zitate
A greater pass through to deposit rates would be more consistent with the desired stance and transmission of monetary policy.— Reserve Bank monetary policy statement
If both retail mortgage rates and term deposits were seeing more equal pass-through, the signalling from interest rates would be more balanced.— Brad Olsen, Infometrics principal economist
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