John Key expects OCR cut

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The Prime Minister John Key says he expects the Reserve Bank to cut interest rates next week as New Zealand deals with the aftermath of the Christchurch earthquake.

Wednesday, March 2nd 2011, 4:05PM

by Jenha White

In an interview with Bloomberg today he said "The market has priced in a cut from the Reserve Bank".

"That would probably be my expectation, that the Reserve Bank would cut, but it's for them to determine that"

This is in line with the predictions of economists from ANZ, Westpac, ASB and the Deutsche Bank which all expect the Official Cash Rate (OCR) to be cut by the Reserve Bank at next Thursday's Monetary Policy Statement.

Most predictions are for a 50 basis point cut from 3.00% to 2.50% and in that light, one-year rates from 10 lenders have already dropped by that amount in the last two days as seen in this story.

ANZ believes "the sheer scale of the event and pending impact on confidence warrants an immediate response" from the Reserve Bank.

However, BNZ and J P Morgan disagree with this opinion.

BNZ says the OCR is probably the wrong tool for the job, with cuts not only having little immediate impact on the Christchurch economy, but also having the potential to create distortions  and imbalances in the wider economy.

"Why use such a blunt nationally-set tool, creating indiscriminate winners and losers, when more direct, fiscal driven responses are by far the most appropriate and effective?"

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

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