Nab Lowers Home Rates

National Australia Bank has continued its aggressive home lending strategy, lowering its rates on some fixed-rate home loans as its competitors lift theirs.

The move on rates puts NAB on the same side as the Reserve Bank Governor, Mr Bernie Fraser, who has described the rise in long-term market interest rates as overblown.

NAB has also increased a range of its term deposit rates, capitalising on its lower cost of funds in the wholesale market.

The interest rate decrease flies in the face of the wider banking sector, which has pointed to higher long bond yields as the reason for raising fixed-term mortgage rates.

The Newcastle Building Society has gone one further than NAB, reducing its variable owner-occupied interest rate from 8.7 per cent to 8.5 per cent.

The rate on NAB's four-year fixed mortgage has fallen 0.25 per cent to 9.25 per cent while the five-year rate has dropped from 9.75 per cent to 9.5 per cent.

A spokesman for NAB, Mr Haydn Park, said the rate decrease supported its view that current bond yields were too high.

"Our summation of bond markets is that they have overreacted a bit and we do have an advantage in international credit markets," he said.

NAB's pricing committee met yesterday and decided long-term bond yields were not likely to remain at current levels, Mr Park said.

The only other major bank to move its rates, Commonwealth Bank, increased its own five-year rate by 0.75 per cent to 9.75 per cent on Thursday.

NAB was among the first of the large banks to reduce interest rates as monetary policy was loosened in 1989.

Economic forecaster, Syntec Economic Services, released a report on Thursday saying official interest rates would rise by the end of the September quarter, with a further tightening in December as business investment showed significant growth.

But NAB has maintained official interest rates will not rise at least until the December quarter due to the lack of improvement in investment.

"Business investment does seem to be coming through, but it hasn't changed in a meaningful fashion as yet," Mr Park said.

NAB will offer a 4.85 per cent deposit rate for terms between six and seven months and 5.25 per cent between 12 and 13 months.

Citibank increased its one year rate to 5.75 per cent on Thursday.