By Rishav Chatterjee

(Reuters) – Commonwealth Bank of Australia (OTC:), the country’s largest lender, cut interest rates on a number of mortgage products for new customers on Friday, fueling fears of fierce competition in the local mortgage market.

CBA shares, which had fallen 0.5% earlier in the day, recovered their losses to close 0.3% higher.

CBA said in a statement that it has cut the variable mortgage rate for new borrowers with a 20% down payment by 25 basis points to 6.89%. Borrowers with larger down payments will see a 20 basis point reduction, effective immediately.

“Perhaps the move to lower lending rates is a way of trying to create some balance from the banks’ perspective,” said Tim Waterer, market analyst at KCM Trade.

Since the start of the year, Australian banks have been in a race to sell mortgages and deposits, putting pressure on margins.

However, fierce competition in the market subsided when CBA became the first major bank to reduce mortgage interest relief in February following the announcement of its first-half results.

The rate cuts come despite Federal Finance Minister Jim Chalmers and Labor MP Jerome Laxale expressing their desire to refer banks to the national competition watchdog to investigate the interest rates banks are offering savers, given decade-high interest rates and inflation running above the central bank’s target.

Earlier this week, CBA, like several other competitors, also cut interest rates on term deposits, the Australian Financial Review reported.

According to the report, ANZ cut its deposit rate by 80 basis points, while CBA cut rates by up to 50 basis points.

Reserve Bank of Australia (RBA) Governor Michelle Bullock recently tempered optimism about a rate cut before Christmas, saying markets expect cuts later this year or early next year once inflation returns to target levels.