ASB opens the rate hike floodgates

ASB is the first bank to increase mortgage rates after the Reserve Bank hiked the Official Cash Rate (OCR) by 25 basis points to 2.75% last week.

Thursday, June 17th 2010, 2:20PM

by Jenha White

ASB has upped its floating and six-month rates by 25 basis points to 6.00% and 6.10% respectively and it has also increased its one-year rate by 10 basis points to 6.45%. The increases put these rates above the medians for the major banks.

Normally floating rates move in lock step with OCR changes but this time it has taken a stand-off of seven days for a bank to make a change with anticipation of the negative press the Australian banks took when they started raising rates.

It is expected now that ASB has started raising rates, other banks will follow suit.

ASB chief executive Customers, Markets and Products Catherine McGrath says this is the first increase in the OCR since July 2007, and further increases are anticipated over the coming months.

"The increases we are making today take into account both our offshore funding costs and the continuing pressure on retail deposit rates in New Zealand."

She says with overall funding costs having increased, ASB made the decision to lift its variable home lending and savings account rates by 25 basis points.

ASB's floating rate had been unchanged at 5.75% since September last year.

McGrath says the market is now entering a new cycle, and ASB needs to ensure its products are priced appropriately based on its underlying costs.

"With this in mind, we have also increased a number of our deposit rates today, ensuring our savings customers see the benefit," adds Ms McGrath.

The variable home lending rate change is effective as from 18 June for new customers and from 5 July for most existing customers. Fixed lending rate changes are effective as from 18 June for all new lending, and deposit rates change on 25 June.

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