Lower floating mortgage rates are still possible in the near term and BNZ currency strategist Kimberly Martin sees no urgency for home owners to fix short-term rates.
In light of recent developments, including relentless falls in global dairy products, the BNZ now expected the Reserve Bank to deliver at least one more cut in the official cash rate.
''We see it as likely the OCR will be cut to 2.5% by October, back to its cyclical lows of 2011-2014.''
Floating mortgage rates would closely follow those moves lower, she said.
Westpac continues to forecast an OCR low of 2% by December but Ms Martin said it was unlikely the OCR would be cut below 2.5%.
The OCR was sustained at 2.5% during the most severe impacts of the global financial crisis and the Canterbury earthquakes.
After a prolonged period of reduced floating rates, borrowers should expect the OCR would rise again before the cycle was complete.
But that was unlikely to be before late next year when inflation finally looked to test the upper end of the Reserve Bank's 1% to 3% target range, she said.
The recent fall in the dollar added to inflationary pressures over the medium term as the cost of imports would rise.
Short-dated wholesale fixed rates had fallen over the past couple of months as the market factored in the prospect of Reserve Bank rate cuts.
The market now almost priced in the BNZ view the OCR would fall to 2.5%, but not until next year.
''If we are correct that the Reserve Bank delivers cuts somewhat earlier, we could see wholesale fixed rates fall further. New Zealand two-year rates are at their lowest levels since May 2013 but are still 0.5% above the lows achieved in 2012.
"We do not see the all-time lows being revisited but anticipate downward pressure will remain in the near-term as incoming dairy data remains soft and broader confidence indicators come off the boil.''
It might be almost a year before there was a material turn in short-end fixed rates, in anticipation of late cycle rate hikes.
The decision to fix over a longer period, such as five years, would be dependent on perceptions of where the ''neutral'' OCR lay, Ms Martin said.
Current five-year wholesale fixed rates were consistent with an OCR cut to 2.5% in the near-term and only reached a peak of 3.5% by 2019.
Borrowers who saw a risk the OCR would end up higher than 3.5% would see value in fixing over that time frame.
There was now little difference in five-year wholesale fixed and floating rates but the situation was unlikely to last, she said.
At a glance
• Lower floating mortgage rates expected in near term
• No urgency to fix short-term mortgage rates
• NZ five-year fixed rates within 0.25% of all-time lows
• Five-year terms provide certainty at limited upfront cost