OCR down 1.5%
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Interest rates cut to 3.5pc, now lowest ever
9:00AM Thursday Jan 29, 2009
Graphic / Christoph Lukasser
Related NZHerald links:
- Brian Fallow: Bollard may be left with blanks
- Going down: OCR to 4 per cent 'in the bag'
- ANZ National cuts interest rates as big OCR cut tipped
- Housing loan approvals surge after big OCR cut - Dec 18, 2008
- Bollard keeps his axe handy - Dec 05, 2008
- All banks drop interest rates after OCR move - Dec 04, 2008
- OCR cut to 4pc, now lowest ever
New Zealand now has the lowest Official Cash Rate since its introduction in March 1999, as Reserve Bank Governor Alan Bollard announced a 150 basis point cut just minutes ago.
This cut takes the OCR down to 3.5 per cent, a full percentage point lower than the previous bottom of 4.5 per cent when the rate was first introduced a decade ago.
The money markets have been regarding a cut from 5 to 4 per cent as a near certainty and saw about a 50:50 chance that governor Alan Bollard would drop the rate to 3.5 per cent.
Since last July the Reserve Bank has lowered the OCR by a cumulative 325 basis points, dispensing ever-larger cuts as the flow of economic data, foreign and domestic, has worsened markedly.
Now another 150 basis points has been added to the decline.
Since the December review, when Governor Bollard also cut by 150 basis points, economists' forecasts of growth among New Zealand's trading partners have been slashed, to the point where they are now expected to contract this year. Hopes for an export-led recovery are accordingly dashed.
The consensus view among market economists in the latest Reuters poll was that the bank would cut by 100 basis points but several, including ASB's Tuffley and Deutsche Bank chief economist Darren Gibbs said they would not be surprised if Bollard cut more aggressively than that.
Many economists expect the OCR to eventually fall as low as 2.5 - 3 per cent.
ANZ National Bank chief economist Cameron Bagrie - who picks the economy to contract by close to 2 per cent this year - said earlier this week he expected a cut today of 100 basis points, to what would be a new low for the OCR, and a statement leaving the door open for more.
The Reserve Bank was getting traction through mortgage rates, he said, and there were other sources of stimulus in the system in the form of fiscal policy and a lower dollar.
Two-year mortgage rates from the banks are clustered around 7 per cent, down some 250 basis points from their peak in March and April last year. Floating rates have fallen more than 300 points in the same period.
Bollard's choice
* Today was Alan Bollard's third jumbo-sized interest rate cut in a row.
* Most market economists were expecting a full percentage point cut in the official cash rate to a new low of 4 per cent.
* A couple were picking 1.5 percentage points. Why wait, they ask, when the end-point of the OCR is expected to be below 3 per cent?
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Now let's see if the Bank's pass on even 80% of that drop.Patience is a virtue.Comment
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Fed keeps US interest rates close to zero
New 10:05AM Thursday Jan 29, 2009
Related NZHerald links:
WASHINGTON - The Federal Reserve in the US has kept its key interest rate at close to zero in an announcement today.
Acknowledging the US economy has continued to deteriorate, it signalled that it will keep using unconventional tools to cushion the fallout, including keeping the key interest rate at a record low for quite "some time".
Specifically, the Fed said it is "prepared" to buy longer-term Treasury securities if the circumstances warrant such action. At its December meeting, the Fed said it was merely evaluating that option. Such a move could help drive down mortgage rates and provide help to the stricken housing market, economists said.
The Fed also agreed - with one dissent - to keep the targeted range for the federal funds rate between zero and 0.25 per cent. The funds rate is the interest banks charge each other on overnight loans. Economists predict the Fed will leave rates at that range through the rest of this year.
- APComment
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