CBA cuts rates for new borrowers re-igniting mortgage war fears

Commonwealth Bank of Australia CBA.AX, the country's biggest lender, cut interest rates for some of its home loan products for new customers on Friday, stoking fears of spurring intense competition in the local mortgage market.

CBA shares, which fell as much as 0.5 per cent earlier in the day, reversed losses and ended 0.3 per cent higher.

CBA said in a statement it cut the variable mortgage rate for new borrowers with a 20 per cent deposit by 25 basis points to 6.89 per cent, while those with larger deposits will see a 20 basis point reduction, effective immediately.

"Perhaps the move to ease rates on the lending side is a way to try and show some balance from the banks point of view," said Tim Waterer, market analyst at KCM Trade.

Since the beginning of the year Australian banks have been in a race to sell mortgages and deposits which have squeezed margins.

The intense market competition, however, calmed once CBA became the first major bank to reduce mortgage discounting following the first-half result in February.

The rate cuts come even as federal treasurer Jim Chalmers and Labor MP Jerome Laxale have expressed their wish to refer Aussie banks to the country's competition watchdog to investigate the interest rates that banks are offering to savers, amid decade-high interest rates and inflation above the central bank's target range.

CBA earlier this week also cut its term deposit rates, along with some other rivals, the Australian Financial Review reported.

ANZ cut deposit rates by 80 basis points whereas CBA cut by up to 50 basis points according to the report.

The Reserve Bank of Australia (RBA) governor Michelle Bullock recently dampened any optimism around a rate cut before Christmas. Markets expect cuts later this year or early next year, once inflation is returned to target.