Reserve Bank cuts rate on global slowdown

By Phil Boeyen, ShareChat Business News Editor

Wednesday 14th November 2001

The Reserve Bank has cut interest rates as expected by 50 points to 4.75% and says monetary policy is now set to accommodate further global weakening.

The latest move matches the half percent cut made on September 19 in the wake of the terrorist attacks in the United States on the World Trade Towers and the Pentagon.

Reserve Bank chief, Don Brash, says the attacks exacerbated a world economic slowdown that was already in place and dealt a blow to business and consumer confidence around the world.

"The slowdown in the international economy is already affecting the New Zealand economy and will continue to do so. Export prices are now falling across a wide front, while nervousness about air travel is having an adverse impact on the growth of tourism.

"Business confidence has declined markedly, and we are expecting investment spending to slow. The economy has already slowed quite sharply and is likely to continue growing rather slowly in the immediate future. This will exert downwards pressure on inflation."

Mr Brash says New Zealand is entering the slowdown in a relatively strong position with demand pressures on productive resources still evident in some areas.

"However, the slowdown in growth expected over the coming year should see these pressures abate, with inflation expected to fall back to around the middle of the target band."

The bank says the latest cut reflects its judgement about the risks that lie ahead but comments that "the uncertainty in the present situation is very considerable, and it is not inconceivable that the current slowdown will prove to be short-lived."

"We will be monitoring all of the information as it becomes available, and will be constantly vigilant as to the outlook for inflation," says Dr Brash.

The next schedule OCR review is not until the end of January.

The latest cut has been matched by banks dropping their mortgage rates with the average floating rate now around 6.7%. On a 20-year, $100,000 mortgage this equals a reduction of around $30 a month.

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