The Bank of New Zealand was the first to start the changes, by cutting its standard variable rate by 0.15% to 6.3%, its total money rate by 0.14% to 5.85% and its Global Plus variable by 0.15% to 6.3%.
Soon afterwards, Kiwibank cut its floating home loan from 5.99% to 5.79%, effective immediately for new customers and in two weeks for existing customers.
However, both banks raised their fixed rates, by up to 0.55% in some cases for Kiwibank.
Kiwibank acting chief executive Paul Brock said recent comments by the Reserve Bank governor the official cash rate was likely to stay at its current level or lower for some time gave Kiwibank the confidence to again cut rates.
"The wholesale markets and deposit rates being offered by banks clearly indicate that, in the longer term, rates will rise. But for now, we see the opportunity to pass through additional savings on variable rates for our customers."
That gave home owners with fixed-term rates coming due for renewal the opportunity to access competitive variable and short-term rates while they considered their options, he said.
Kiwibank had a six-month rate of 5.45% and one-year rate of 5.59%.
The two-year rate increased 0.3% to 6.39% and the three-year rate was up 0.55% to 7.4%.
The BNZ had an 18-month rate of 5.99%, a three-year rate of 7.45% (up 0.46%) and a five-year rate of 8.3% (up 0.45%).
BNZ retail director Chris Baylis said that historically New Zealanders had favoured the security of fixed-interest rates.
As current market conditions were likely to continue until late next year, the BNZ wanted to give customers the option of competitively low variable rates.
ABN Amro Craigs broker Chris Timms, who has previously forecast a fall in floating rates as fixed rates rose, said the cost of debt offshore had made banks reassess their rates.
"Because we are a nation of non-savers, the banks have to borrow from those nations who are savers, and because we like fixed mortgages, it costs banks more to borrow overseas."
Banks would be thinking about their deposit rates, but they would be conscious of their margins.
If they increased their deposit rates the margin between borrowing and lending would shrink, he said.
"Investors are not getting enough off their money now. The rally in the sharemarket bears testament to the increasing confidence in growth assets and investors ploughing money back into them," Mr Timms said.
BNZ chief economist Tony Alexander said wholesale rates had crept higher this week, as he had expected.
The rate rises had been driven by the continuing growth in acceptance of the economic recovery scenario here and overseas.
Across the Tasman, the flow of economic data had been strong and forecasts were bringing forward their expectations for when the monetary policy tightening cycle would start.
Many favoured early next year, 2010, but some warned that this year was possible, he said.
"This is relevant to interest rates in New Zealand as we tend to compete in the same market as Australian borrowers seeking to raise funds offshore, and if their rates are rising then investors naturally demand we pay extra as well," he said.
"That means the 40% of funding we banks need to arrange to lend money to us debt-hungry over-borrowing Kiwis gets more expensive."
