RBNZ cuts OCR to record low 2.5%

Reserve Bank of New Zealand Governor Alan Bollard cut the official cash rate 50 basis points to 2.5%.

Thursday, April 30th 2009, 8:43AM

by Paul McBeth

"We expect to keep the OCR at or below the current level through until the later part of 2010," Bollard said in Wellington today.

Interest rates have been slashed 5.75 percentage points since July, when Bollard bet inflation would abate as the economy headed deeper into recession.

The annual rate of inflation slowed to 3% in the first quarter, back within the central bank's target band and the lowest since the third quarter of 2007. Inflation was 3.4% in 2008. Bollard, who last year embarked on the steepest easing since the OCR's inception a decade ago, has "room to go further in responding to deteriorating economic conditions," the OECD said in its country report this month.

New Zealand's economy may contract 0.8% this year before weak growth resumes in 2010, the central bank forecast in its March monetary policy statement.

Bollard will "hammer home the message to the public, and to a lesser extent, the market, that it does not expect to reverse the course of policy in the foreseeable future," Darren Gibbs, chief economist at Deutsche Bank, said before the RBNZ statement.

Some economists are predicting the global down turn is reaching its trough, with the US Conference Board sentiment index this week showing consumer confidence climbed by the most in four years.

In New Zealand, government figures showed exports topped $4 billion for the first time ever in a month in March, helped by rising prices for farm commodities.

Fonterra Cooperative Group, the largest exporter of dairy products in the world, this week raised its forecast payout to farmers by 10 cents to $5.20 per kilogram, still well down on the $6 per kg payout predicted last November and last season's record $7.90 payout.

Paul is a staff writer for Good Returns based in Wellington.

Tags: OCR