Again the Reserve Bank of New Zealand is dropping our Official Cash rate amid the world and New Zealand Economy falling as credit becomes tight and people stop spending money like they have in the past few years. The new OCR rate of 3% is a 50 bias point drop on what it was at 3.5%. The total drop in the past two months has been 2%. But is this enough to stimulate our economy enough to give it the spur of life that it needs.
Reserve Bank Governor Alan Bollard said: “The world economy deteriorated very rapidly late last year, amid ongoing losses and extreme volatility in international financial markets. While monetary and fiscal policy responses in many countries have been substantial we still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009. The timing and extent of global recovery remain highly uncertain.
One point I would like to note which seems interesting to me is that as you can see by the picture of the NZD against the USD as soon as the OCR rate cut was announced we saw about a half a cent rise in its value and this value has stayed constant all day. In my view this is a good sign to look at as this means that investors have got some confidence in our dollar and its performance. Also as a side note we saw fuel drop in price by .5c a liter today at 12pm which will make everyone a little more happy.
As we are at the moment we are coming into winter which is traditionally the time when people start to wind down on the spending and save money for the summer vacations and the likes of christmas and new year parties etc. The winter sees less people moving around as well because generally most peole have settled into their new jobs and the children are into their school routine and people tend to sit down and not do as much. This year has seen many people get into that routine alot earlier and many are going to find this winter very difficult.
Although sales volume for Real Estate was the highest in about a year at just over 5200 sales recorded for the 28 days in Feburary it was still the lowest recorded sales volume for 10 years. This gives us a clear indication that people are not buying at the moment. I do believe though that the interest rate drops from the OCR are going to give the housing market a boost as there are some great oportunities out there to buy if you have the equity to borrow you will most likely be able to find a property out there that will return a positive cash flow now.
I myself have been going around Christchurch doing a small survey and talking to almost every business owner in dairies, supermarkets, fish and chip shops etc etc and generally the same message is coming accross is that business is tight. People are not spending money but there is a trend for what people are spending more money on. The trend seems to be that people are spending more money in the stores where they can get their entertainment and take it home. So instead of people going out for dinner, going to the movies and going to the bars it seems people are buying those items from video stores and bottle stores and are taking those back home and entertaining at home. This is one way to save money.
It will be very interesting to see how much of this rate cut will be passed to the consumer over the next few weeks.
2 thoughts on “New Zealand OCR Dropped to 3.0% 12 March 2009 – Will This Help?”
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Deon great post and valuable info – cheers
Cheers Peter.
Will be in aucks soon doing some market research will be great to catch up with you.