Banks were already trimming mortgage interest rates earlier this month, but interest rates are tipped to drop to new lows as competition becomes an all-out war.

New Zealand reportedly has the highest interest rates in the developed world.

Our own Glen McLeod agrees lower rates were possible. "If the Australian Reserve Bank drops their rate, that will put a lot more pressure on ours to go down."

Some experts warn that this could raise the spectre of further measures to put a handbrake on booming house prices.  Some say that low rates, which fuel the overheated property market in Auckland, might see the introduction of more tools to cool prices like the controversial loan-to-value restrictions.

Westpac chief economist Dominick Stephens said: "We have to seriously consider that the next move could be a tightening, not a loosening. However, it would take an OCR cut to get bank retail rates below 5 per cent. "I don't think we will see that at this stage. We need to see the global economy get really bad for that to happen."

ANZ's Cameron Bagrie agreed. "Is [under 5 per cent] likely? No. Is it possible? Yes."

Source: NZHerald