NBNZ calls for further rate cuts

The National Bank is calling for the Reserve Bank to cut interest rates further in the wake of its latest monthly survey which shows business confidence halved from March.

Monday, April 30th 2001, 12:40PM

by Jenny Ruth

The National Bank is calling for the Reserve Bank to cut interest rates further in the wake of its latest monthly survey which shows business confidence halved from March.

A net 17% of businesses now expect general business conditions to improve over the next 12 months, down from 30% at the end of March.

Chief economist Brendan O’Donovan attributes the decline to global growth jitters.

The outcome isn’t as bad as the Institute of Economic Research’s quarterly survey published earlier this month which showed confidence slumping from positive 31% to a net 2% negative.

Nevertheless, `the direction and fragility of confidence is clear,’ O’Donovan says.

`The Reserve Bank has been handed the (losing) trifecta of weakening global growth, deteriorating business confidence and modest inflation,’ he says.

While the central bank has responded by cutting rates, `more work has to be done.’

Another looming problem domestically is that drought conditions over much of the country will dampen the demand stimulus from the strong recovery in rural incomes over the past year.

`We’ll be getting a skim milk rather than full cream version of the agricultural sector in the coming year,’ O’Donovan says.

The survey’s inflation indicators should also provide the Reserve Bank with comfort to continue to reduce interest rates, he says. `Firms’ pricing intentions and inflation expectations continue to ease.’

The central bank has lowered its official cash rate from 6.5% to 6% in two 25 basis point moves so far this year.

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