The Reserve Bank's indicating that the country's retail banks haven't as yet been passing on enough of the stimulus the RBNZ has been providing and it says it will be watching them.
It wants to see lower mortgage rates while, separately, it is expecting that house prices are set to fall about 9%.
At a press conference on Wednesday, Governor Adrian Orr said the RBNZ didn't "put pressure" on banks. But he did say that ultimately the RBNZ expected "to see the full pass through" by banks of lower wholesale interest rates.
In its Monetary Policy Statement released on Wednesday the RBNZ said: "So far, we have not observed the pass through of wholesale interest rate reductions to retail interest rates to the extent we might expect in normal times."
The bank said this likely reflected a number of factors, including strong competition for deposits as market funding conditions deteriorated.
"As the economy comes out of lockdown, we expect a lift in lending market activity and increased competition from banks to put downward pressure on lending rates."
Clarifying this further, the bank said with wholesale funding markets settling and emerging signs of an easing in financial market conditions, "we expect to see more downward pressure on wholesale funding costs and deposit rates from the monetary policy easing to date, and this should flow through to lower fixed mortgage rates in the near future".
"As the economy comes out of lockdown, activity in lending markets will increase and competition for credit will also put downward pressure on lending rates."
The RBNZ said that "going forward", banks may respond to the low interest rate environment by sourcing more of their funding in wholesale funding markets, as this can represent a relatively cheap source of funding and add downward pressure to deposit and mortgage rates.
"The easing of our Core Funding Ratio (CFR) requirements gives banks additional flexibility over their funding sources, by reducing their need to fund as much through more ‘sticky’ core funding (e.g. long-term wholesale debt or retail deposits).
"We expect our recent monetary policy easing to pass through more fully to bank funding costs and lending rates in the near future, and will be closely monitoring movements in retail interest rates and bank margins."
On house prices, the RBNZ said it expected lower population and household income growth to cause house prices to fall, despite lower construction activity, lower interest rates, and the easing of loan-to-value ratio restrictions.
"Our baseline scenario assumes house prices will fall by around 9% over the remainder of 2020."