NZ Interest Rates cut to all time low

May 8, 2009

New Zealand's central bank cut the official cash rate by half a percentage point to a record low 2.50% because of the impact of the global economic crisis. Reserve Bank of New Zealand Governor Alan Bollard said he expects to keep interest rates at their current level or lower until the latter part of 2010. The warning about the length of time that rates will stay low was unusual for Mr. Bollard, who rarely gives a specific outlook for rates. "We have been firmer than we would typically have been. The reason is that we are trying to avoid the sort of premature expectations of recovery that we have seen over the last months in some economies," he said. The latest cut brings the official cash rate to its lowest level since it was introduced in March 1999, and follows a half a percentage point reduction in March. New Zealand interest rates have been cut by 5.75 percentage points since July last year. ANZ Bank senior markets economist Khoon Goh said the unconditional commitment to keep rates at or below current levels until the latter part of 2010 was unusual as inflation wasn't a factor. Mr. Bollard said developments since March point to lower medium-term inflation than previously projected. "The main factors behind this are weaker global growth, and an unwarranted tightening in financial conditions via both higher long-term interest rates and a stronger exchange rate than expected."