THE Reserve Bank of New Zealand has cut interest rates by 50 basis points to 2.5%.
Reserve Bank Governor Alan Bollard said the world economy deteriorated further than expected in the first quarter of 2009 and he added whilst monetary and fiscal policy responses in many countries have been substantial and there are some signs of stabilisation in some countries, the RBNZ still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009.
“The timing and extent of global recovery remain highly uncertain,” he added.
Dr Bollard said while the New Zealand economy has not experienced the same extreme falls in economic activity as seen in a number of trading partners, it remains weak.
He noted business sentiment is low, investment has been curtailed and employment reduced.
“We expect the large decline in the OCR over the past year to pass through to more borrowers over coming quarters as existing fixed-rate mortgages come up for re-pricing.
“This, together with the stimulus from fiscal policy, will act to support the New Zealand economy and eventually see activity trough and pick up thereafter. However, the scale of the global financial crisis and domestic adjustments underway are such that it is likely to be some time before economic activity returns to robust and healthy levels.
“We consider it appropriate to provide further policy stimulus to the economy. We expect to keep the OCR at or below the current level through until the latter part of 2010,” he continued.
Dr Bollard also signal rates could fall further.
“The OCR (Official Cash Rate) could still move modestly lower over the coming quarters,” he concluded.
Australian Property Journal
