OCR cut by 50 basis points to 2.50%

Reserve Bank Governor Alan Bollard says the Reserve Bank extends its sympathies to all those affected by the Christchurch earthquake.

"Our condolences go especially to those who have lost family, friends and colleagues.

"The earthquake has caused substantial damage to property and buildings, and immense disruption to business activity. While it is difficult to know exactly how large or long-lasting these effects will be, it is clear that economic activity, most certainly in Christchurch but also nationwide, will be negatively impacted. Business and consumer confidence has almost certainly deteriorated.

"Even before the earthquake, GDP growth was much weaker than expected through the second half of 2010. Households have continued to be very cautious, with retail spending volumes and residential investment both declining.

"The export sector has benefited from very high commodity prices, however, farmers have focused on repaying debt rather than increasing spending. Also the early summer drought constrained farm output through this time.

"Signs that the economy was beginning to recover early in 2011 have been more than offset by the Christchurch earthquake.

"In putting together the forecasts underlying this Monetary Policy Statement, the Bank has had to make many important assumptions based on limited information. Over the coming weeks and months, these judgments will be tested as new information comes to hand.

"For now, GDP growth is projected to be quite weak through the first half of the year. This will gradually build up to a very large reconstruction programme by 2012 that will last for some years and contribute to a period of relatively strong activity.

"Future monetary policy adjustments will be guided by emerging economic data. We expect that the current monetary policy accommodation will need to be removed once the rebuilding phase materialises. This will take some time.

"For now we have acted pre-emptively in reducing the OCR to lessen the economic impact of the earthquake and guard against the risk of this impact becoming especially severe."

To see mortgage rate changes from lenders as a result of the OCR cut, go to the table on www.mortgagerates.co.nz

Comments from our readers

On 10 March 2011 at 3:43 pm Gopalan Sreenivasan said:

Reduction in OCR is welcome. Premature increase in OCR last year by 0.50%(two lots of 0.25%)during the middle of last year has indeed derailed the fragile recovery. Last year during March, the NZ Government has introduced some changes to investment properties. Anyone can point out clearly that when the country had some negative fiscal policy(changes to investment properties) the monetary policy needs to be balanced out and the Reserve Bank should not have increased the interest rates last year. Now we all have to struggle to nurture the fragile recovery.

On 10 March 2011 at 4:10 pm Bystander said:

OCR should have been left at 3%.
Inflation is becoming bedded in and will race away over the next 6mths.

OCR cut by 50 basis points to 2.50%

The Reserve Bank today reduced the official cash rate (OCR) by 50 basis points to 2.50%.

Thursday, March 10th 2011, 9:13AM 2 Comments

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