By Rishav Chatterjee

(Reuters) – Commonwealth Bank of Australia (OTC:CMWAY), the country’s biggest lender, cut interest rates for some of its home loan products for new customers on Friday, sparking fears of increased competition in the local mortgage market.

CBA shares, which initially fell by up to 0.5% earlier in the day, reversed losses and ended up 0.3% higher.

CBA announced a reduction in the variable mortgage rate for new borrowers with a 20% deposit by 25 basis points to 6.89%. Borrowers 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 demonstrate some balance from the banks’ point of view,” remarked Tim Waterer, market analyst at KCM Trade.

Since the start of the year, Australian banks have raced to sell mortgages and deposits, which compresses margins. However, the fierce competition eased after CBA became the first major bank to reduce mortgage discounting following its first-half results in February.

These rate cuts occur despite federal treasurer Jim Chalmers and Labor MP Jerome Laxale expressing a desire to refer Aussie banks to the competition watchdog, tasked with investigating the interest rates that banks offer to savers amid decade-high interest rates and inflation surpassing the central bank’s target range.

Earlier in the week, CBA also reduced its term deposit rates, along with several other competitors, as reported by the Australian Financial Review.

ANZ reduced deposit rates by 80 basis points, while CBA cut by up to 50 basis points.

Reserve Bank of Australia (RBA) governor Michelle Bullock recently tempered any optimism concerning a rate cut before Christmas. Markets anticipate cuts later this year or early next year, once inflation returns to targeted levels.