an interest rate of 2 per cent on its nine-month term deposit for a $10,000 investment, a noteworthy increase from the previous 1.65 per cent, while its one-year rate has also been increased from 2.2 per cent to 2.3 per cent. However, people with a deposit between $5000 and $9999 get marginally worse rates from Kiwibank, at 1.9 per cent for nine-month term deposits, and 2.2 per cent for one-year.
The recent increases mean that the firm is paying more for a nine-month term deposit than some of its major rivals, ANZ, Westpack, ASB and BNZ, and is on par with TSB. However, with inflation at a record high of 5.9 per cent no bank is offering returns sufficient for savers to stop their balances being eroded in real terms. According to Kiwibank chief economist Jarrod Kerr, inflation is expected to drop below 3 per cent in 2023, meaning depositors at banks are unlikely to see after-inflation real return on their money anytime this year.
In terms of one year rates, Kiwibank matches its fellow competitor BNZ, at 2.3 per cent, while a rate of 2.4 per cent is being offered by Westpac, which recently lifted some of its term deposit rates. Kiwibank’s nine-month term deposit rate was described as “sharp”, by a spokesperson for the bank, who said it offered a short-term return ahead of expected increases in the Reserve Bank’s official cash rate.
Following the last increase in November, the OCR currently stands at 0.75 per cent, and economists expect it to rise further during the remainder of the year and early next year. According to ASB senior economist Mark Smith, the OCR is expected to peak at 2.75 per cent in early 2023. “We have changed our OCR call in light of the tight labour market and high medium-term inflation outlook,” he said. “A steady pace of 25 basis points (0.25 percentage points) hikes is expected each meeting, with the OCR now peaking at 2.75 per cent in early 2023.”
Smith added that such increases had both a positive and negative impact on the economy. “On the downside, the tightening in financial conditions would hit the housing market, crimp domestic spending, and require more moderate OCR tightening,” he said. “On the upside, inflation could prove to be more ingrained and capacity pressures more intense than is commonly assumed.”
