The two year rate, formerly 2.55%, will be cut to 2.49%, 40 basis points cheaper than the cheapest big four rate, offered by Westpac at 2.89%.
The new offer comes into effect on Monday.
Kiwibank chief executive Steve Jurkovich said the state-backed bank was providing "certainty to its customers".
Despite cutting its two year rate, Kiwibank has increased its variable rate, from 3.4% to 3.75%.
It has also hiked its one year special rate by 30 basis points to 2.49%, 3 year special by 30 basis points to 3.29%, and 4 year special to 3.59%, up 20 basis points.
The bank's five year special jumps by 20 basis points.
Kiwibank's standard rates increase by the same level of basis points.
Revolving credit rates also increase to 3.80% from 3.45%.
Jurkovich said he was "proud" of the bank for continuing to offer variable rate that remained significantly cheaper (69 basis points) than the big four.
"We challenged the market by reducing the pricing gap between fixed and floating rates giving our customers greater flexibility, choice and savings. In a time of uncertainty, we wanted to provide Kiwi with an opportunity to pay back their loans faster, save, or buy local and support our economy.
"I’m proud that as a challenger we are providing Kiwi with a real alternative to the Australian-owned banks as well as supporting the growth and progress of all New Zealanders.
"We will continue to pursue our goal to lead the New Zealand financial services industry by being a better banking alternative that’s committed to being fair and easy for Kiwi, the businesses they own, and for future generations," Jurkovich added.