The main banks have followed ASB's lead in dropping the most popular interest rate with home borrowers two-year fixed to 8.95 per cent.
Last week, Reserve Bank Governor Alan Bollard dropped the official cash rate (OCR) 0.25 percentage points to 8 per cent and indicated further falls were likely.
While ANZ, National and Westpac have dropped their two-year fixed rate to 8.95 per cent, BNZ has dropped it to 8.99 per cent,and TSB to 8.88 per cent. Kiwibank's two-year fixed rate is 8.99 per cent for those with 20 per cent equity but higher at 9.19 per cent for those with less equity.
However, floating interest rates have not fallen and range from 10.2 per cent to 10.95 per cent at the four big banks, plus Kiwibank and TSB.
In the past, it is more likely to have been floating rates that moved with a movement in the OCR.
But ASB's retail banking head, Ian Park, said the two-year rate was the most popular and so a move there would get the best customer response.
Shorter term rates should start to fall towards the end of the year.
Westpac spokesman Craig Dowling said the drop in two-year fixed rates was more about competition between the banks than the fall in the OCR.
Complicating the picture was the higher costs of borrowing overseas for banks.
The OCR influenced other interest rates, but was only one factor, Dowling said.
New Zealand's banks source about 40 per cent of their funding overseas, up from 30 per cent 10 years ago, a Reserve Bank report says