Reserve Bank governor Graeme Wheeler says some banks are close to hitting the limit of what they can borrow offshore, meaning competition for local savers will continue.

A war for savers is expected to intensify in the coming months, pushing deposit rates above 4 per cent and driving up the cost of mortgages, experts say.

Reserve Bank governor Graeme Wheeler said some of New Zealand's major commercial banks were "approaching the limits" of what they could borrow offshore.

Already this had pushed up the interest rates offered to savers, and the price at which banks were offering mortgages, and Wheeler hinted the battle would intensify.

"I would expect that competition for deposits to continue quite significantly in the coming months," Wheeler said on Thursday.

READ MORE: Dovish Reserve Bank says next OCR move could be a cut

While the official cash rate (OCR), the benchmark interest rate, remains at an all time low of 1.75 per cent, New Zealand's major banks have been raising the rates offered to everyday customers.

The average interest rate offered to savers on a six-month deposit rate is now 3.32 per cent, up from 3.14 per cent 12 months ago.

Meanwhile, the rate on the average two-year, fixed-rate mortgage has risen from 5.64 per cent to 5.8 per cent over the same period.

Cameron Bagrie, chief economist at ANZ, said the banks were already pulling back on credit in a bid to increase local deposits.

If the banks were to continue to tap offshore markets for funding at the same rate as recent years, New Zealand's current account deficit would "blow out", raising the risk that the banks would face credit rating downgrades.

With asset prices booming, Bagrie said the banks were starting to show some restraint.

"It's midnight at the bar, we've had a few drinks. Do we stay out to 4am and wake up with an almighty hangover, or do we go home?," Bagrie said.

"The banking sector at the moment are basically rationing the drinks at the bar."

Bagrie said the battle for deposits was alive and would continue. How far rates on both deposits and mortgages rose depended on how quickly deposits rose.

Currently banks were offering around 3.5 per cent interest for 1-2 year deposits, Bagrie said.

"It looks to be a matter of time until we see those deposit rates rising through 4 per cent," Bagrie said.

As deposit rates rose, mortgage rates would also climb "at the same time," Bagrie said.

"There's a big gap between where credit growth sits at and where deposit growth is."

RATES ON HOLD FOR 'PROLONGED PERIOD'

The New Zealand dollar dropped sharply on Thursday after the Reserve Bank said the benchmark official cash rate (OCR) would stay low for longer than expected.

Wheeler was expected to leave the OCR at 1.75 per cent, but hint that increases would come sooner than he predicted back in February.

But Wheeler made little change to his future projection for the OCR, which influences mortgage and savings rates.

"Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly."

ASB chief economist Nick Tuffley said Wheeler's stance was little changed from February.

"We had expected some bringing forward of the implied tightening to the first half of 2019."

Financial markets reacted by pushing down the New Zealand dollar.

The kiwi was buying about US69.4c just before the Reserve Bank statement, dropping to around US68.5c minutes later.

It now sits just above the 11-month low it fell to last week, as traders took a major "short" position.

Economists had expected that higher than expected inflation and strong job creation revealed in recent weeks would lead Wheeler to signal interest rate increases were coming.

But the governor said the overall impact of recent developments was "neutral". Although global economic growth had picked up, major uncertainties, including political, remained, Wheeler said.

​Wheeler said a fall in New Zealand dollar - which is down about 5 per cent since February "is encouraging and, if sustained, will help to rebalance the growth outlook towards the tradables sector".