New Zealand cuts interest rate by 150 basis points to 3.50%. | CountingPips Forex Blog

January 28, 2009 - Forex Economic News

New Zealand cuts interest rate by 150 basis points to 3.50%.

The Reserve Bank of New Zealand reduced its interest rate by 150 basis points today according to a government release. The rate reduction brought the official cash rate from 5.00 percent to a record low 3.50 percent. The rate cut follows a reduction by 150 basis points in December and surpassed market forecasts expecting a smaller reduction to 4.00 percent.

The rate reduction is in response to the slowing global economy and is a bid to ease the effects New Zealand slashes interest rate of the recession in New Zealand as the New Zealand economy has been contracting since the beginning of 2008. The Gross Domestic Product declined by 0.3 percent in the 1st quarter of 2008, 0.2 percent in the 2nd quarter and by 0.4 percent in the third quarter.

Reserve Bank Governor Alan Bollard commented in the release on the New Zealand economy and the rate cut, "The extent of the decline in global growth prospects and the ongoing uncertainty has played a large part in today’s decision. We now expect the impact on New Zealand of these developments to be greater than we did in December, as a result of a more negative outlook for the terms of trade and exports, and tighter credit conditions."

"Today’s decision brings the cumulative reduction in the OCR since July 2008 to 4.75 percentage points. Lower interest rates will have a positive impact on growth, alongside a lower exchange rate and fiscal stimulus, provided firms and households do not unnecessarily contract their spending. To ensure the response we are seeking, we expect financial institutions to play their part in the economic adjustment process by passing on lower wholesale interest rates to their customers. This will help New Zealand respond flexibly."

The RBNZ rate cut today followed December as the only times the RBNZ had ever cut the rate by 150 basis points and brought the rate to its lowest standing since the bank adopted its official cash rate policy in 1999.

The bank statement also stated that more rate cuts to come should be smaller than the last two reductions. You can read the full bank statement here.

tags: new zealand, interest rate, rbnz, nzd

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