Banks start lowering fixed-term mortgage rates

Retail banks have recently started lowering their fixed-term mortgage lending rates as competition for customers heats up.

BNZ chief economist Tony Alexander each week provides his recommendation of what he would do with a mortgage, if he had one.

''In case you had not noticed, there is a sniff of a fixed rate discounting war in the air.''

''I'd be keeping an eye out for a nice, low long-term fixed rate and locking half of my mortgage into it while placing the other half in a mixture of floating and fixed rates out to two years.''

Mr Alexander would not be doing that with the goal of minimising his interest rate cost because doing that required faith in interest rate forecasts, which had been wrong for about five years.

''Instead, I'd look at it from a near pure-risk management perspective of giving myself time to adjust should interest rates surprise on the upside.''

Wholesale interest rates had fallen slightly in the past week, largely in response to falls in fixed interest rates offshore because of worries about the political situation in Europe, he said.

The falls might not last given the increasing frequency of positive data releases in the United States and New Zealand domestic data showing growth accelerating.

However, for now, with drought deepening in the North Island and the currency already high, there was little chance of the Reserve Bank tightening monetary policy. Mr Alexander was picking it would be 2014 before the central bank lifted its 2.5% official cash rate.