New Zealand Cuts Interest Rates

September 11, 2008

11th Sept 2008. Following on from last months 0.25% cut in the base rate, Reserve Bank Governor Alan Bollard was widely expected to announce a further 0.25% cut yesterday. However, he surprised the market with an aggressive 0.5% cut in the official cash rate. Within an hour, one of the main banks, Kiwibank moved to cut its mortgage rates. The official cash rate now stands at 7.5% and there is every likelihood that we may see a further reduction before the end of the year. “We believe this response is warranted in light of current credit conditions and the time it will take to affect the actual interest rates faced by households and businesses,” said Bollard. The NZ Dollar dipped immediately, seeing £Sterling buying $2.71 overnight which is good news indeed for Brits who are patiently waiting for a more favourable exchange rate before bringing funds into New Zealand. The cut in the rate is widely welcomed by just about everyone in New Zealand, particularly exporters who have struggled to cope with an overvalued NZ dollar. Even with an economic slowdown, the front page headline in the Business Herald last week proclaimed: “Skills shortage the biggest concern”. The shortage of skilled labour in New Zealand remains the number one concern of businesses. Again, good news for migrants as it shows clearly that their overall employment prospects are good.