Kiwibank lifts deposit rates, but positive 'real' returns unlikely before 2023

Tuesday, 8 February 2022

Kiwibank has lifted some of its term deposit rates, but despite the bank forecasting the OCR to reach 2.5 per cent by the end of the year, the bank’s two-year rate is just 2.4 per cent.

Kiwibank has lifted its nine and 12-month term deposit rates, taking them ahead of most of its big bank rivals.

The bank lifted its nine-month term deposit for a $10,000 investment from 1.65 per cent to 2 per cent, and its one-year rate from 2.2 per cent to 2.3 per cent.

People with $5000 to $9999 to deposit get marginally worse rates, with Kiwibank paying them 1.9 per cent for nine-month term deposits, and 2.2 per cent for one-year term deposits.

The move means Kiwibank is paying more than ANZ, ASB, BNZ and Westpac for a nine-month term deposit, and on par with TSB, but with inflation at 5.9 per cent, there is no bank offering as much as savers need to stop their balances being eroded in real terms.

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Kiwibank chief economist Jarrod Kerr said depositors at banks were unlikely to see an after-inflation real return on their money until next year.

Kerr said Kiwibank expected inflation to drop below 3 per cent next year.

Rabobank is paying a 2.05 per cent rate for nine-month term deposits for depositors with $1000 or more to invest.

Kiwibank chief economist Jarrod Kerr says positive real returns on bank term deposits could return next year, once inflation is back under control.

The lowest nine-month term deposit rate offered by one of the big-brand banks is 1.55 per cent from ASB.

On one-year rates, Kiwibank now matches BNZ’s 2.3 per cent rate, but Westpac, which has also only recently lifted some of its term deposit rates, is paying 2.4 per cent. Rabobank is paying 2.45 per cent.

A Kiwibank spokesman called the nine-month term deposit rate “sharp”, saying it offered a short-term return in advance of expected increases to the Reserve Bank of New Zealand Te Pūtea Matua’s (RBNZ) official cash rate (OCR) by towards the end of the year.

The OCR is currently 0.75 per cent, having last been raised in November, but economists expect it to rise during the remainder of the year, and early in 2023.

Kerr said: “We now see the RBNZ hiking the cash rate at every meeting in 2022, taking the cash rate to 2.5 per cent by November.”

That was a full six months earlier than previously thought, he said.

There are Reserve Bank monetary policy decisions due on February 23, with further decisions in April, May, July, August, October and November.

The Reserve Bank would increase the OCR in a bid to stifle high inflation, Kerr said.

Mark Smith, senior economist at ASB, said: “We now expect the OCR 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,” Smith 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.”

But there was a both a chance the OCR might not go as high, or could go even higher.

“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.”