RBNZ says rate cuts should act faster this time

“The big thing in terms of the pass-through of lower mortgage rates is to recognise that roughly 70% of mortgages will be repriced over the next nine to 12 months,” Silk said.

“That's significantly greater than we've seen previously. So our expectation is any reduction in mortgage rates from here, or lending rates for businesses, would pass through more quickly than we've seen previously.”

Silk said that while slightly more than a third of New Zealand households have mortgages, those borrowers have higher incomes, meaning they account for between 60% and 65% of total household income.

On Wednesday, RBNZ cut its official cash rate (OCR) to 5.25% from 5.5% previously and has pencilled in at least one more cut this year.

In its latest monetary policy statement (MPS), RBNZ said it expect household consumption will continue to ease over the rest of this year because of high interest rates, the softening housing market and the weakening labour market.

RBNZ is forecasting unemployment will peak at 5.4% from 4.6% in the June quarter.

The MPS noted that “financial conditions have loosened since the May statement. Mortgage rates and term deposit rates have fallen at all horizons.”

Swap rates, the wholesale rates that mortgages are priced off, “have decreased signifcantly at all terms compared to immediately before the May statement,” it said.

Market pricing also showed increased expectations of OCR falls from July 10 when RBNZ said in its review of monetary settings that it expected inflation would fall back to within its 1% to 3% target in the second half of this calendar year.

The consumers price index was 3.3% in the June quarter.

The MPS said mortgage rates for one to two-year fixed periods, which account for a large proportion of new mortgage flows, had dropped about 30 basis points between the May statement and Wednesday's.

“Despite this, we assess current mortgage rate levels as still being restrictive.”

All five of the major banks cut their floating mortgage rates on Wednesday and ASB Bank  also cut its fixed-term rates by between 10 and 34 basis points.