The New Zealand dollar tumbled to a 2-year low versus the US dollar as the Reserve Bank
of New Zealand lowered its key interest rate by .5% points to 7.50%. The move surprised the economists who were widely expecting a 25 basis point cut. The NZ dollar also slumped to a more than 2-yearlow against the yen and multi-day lows against the euro and the Aussie.
This is the second rate cut in a row, with the first reduction in the Official Cash Rate implemented on July 24. The central bank had then lowered interest rates by .25%. At that time, the central bank signaled, that more rate reductions were to come in hopes of stimulating an economy suffering from a decline in the housing markets, commodities and credit restrictions.
The New Zealand stock market reacted positively following the Reserve Bank of New Zealand’s decision to cut its key interest rate. At 8.25 P.M. ET, the benchmark NZX 50 Index was advancing 32.00 points or 0.96% to 3,375.86, while the NZX All Capital Index was gaining 33.97 points or 1.01% to 3,409.33.
Alan Bollard has said that the move to lower the OCR is appropriate to move towards a less restrictive monetary policy stance which could suggest that they will continue cutting rates in the future as weakening economic activity is “expected to translate into lower inflation pressures in the medium term.”
Alan Bollard said “The New Zealand economy is experiencing a marked slowdown, while domestic activity is likely to pick up late this year as a result of personal tax cuts, increased government spending and rising rural incomes, we expect a prolonged period of household sector adjustment and below-average growth.”
The New Zealand dollar, which closed yesterday’s New York session at 0.6622 against the US currency, fell to 0.6494 early this morning. This is the lowest its been since October 10, 2006.
The strength of the US dollar is also weighing the kiwi. The US currency has been rallying on the back of a drop in crude oil prices. The US trade balance report for the month of July may be in the spotlight in the early New York session today. The trade deficit is expected to widen to $58.0 billion compared to the previous month’s deficit of $56.8 billion.
But what does this mean for property and Buyers in New Zealand.
Well Kiwibank has responded to the cut in the Official Cash Rate by reducing all its home loan rates.
These include 0.50 percent off its variable rate which moves to 9.7 percent and 0.36 percent off its two-year fixed rate, which moves to 8.49 percent.
Kiwibank chief executive Sam Knowles says We appear to have passed the peak of very high interest rates and we now have the opportunity to pass on some genuine savings to home owners.
Most of the other major banks are now following Kiwibanks lead but have not drooped their rates to the extent of Kiwibank who seem to be market leaders at the moment for interest rates.
Now it will be cheaper to have a home loan. So if you are buying some Real Estate make sure you get a good deal from your lending company. But all the signals are looking bright. Interest Rates are coming down, Petrol Prices are coming Down, Property Prices have come down but seem to be slowing flattening out. ALl this signals that maybe New Zealand is coming out of the Ressession and maybe about to steady out.
If you want to read a very informed article from Bernard Hickey of interest.co.nz click this link. But try and avoid taking in the negative comments from the discussion. Many people are still negative about the housing market. But in my opinion this is not the right attitude to have. If you look at the facts and the figures over the long period and talk with people out and about there seems to be some optimisum out there in terms of the New Zealand economy and housing market. The over all feel is positive.
4 thoughts on “NZ OCR Dropped by .5% in Surprise Move By Reserve Bank”
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I thought that the interest rate had to drop this month by 0.5 rather than 0.25 as the Kiwi dollar has just keeps bobbing up when it needs to keep it’s head just under the parapit. The housing market being dead in the market has caused more than just real estate agents to look for other work it has also affected other trades such as builders and their suppliers. People are reluctant to improve their careers, if they cannot move to another area without being certain of selling their current property.
Also high interest rates stop businesses growing as they cannot afford to take a loan out to grow their business if the loan payments wipe out any growth in profits and it is also accompanied with a strong kiwi dollar.
good effort mate, relevant and on the mark – your regulars will be happy – cheers peter
Steve,
I am not an economist so I cant really comment on this. The thing is we can all have our opinion on how it should be done and what would be best for us. But at the end of the day it needs to be evened out.
There will always be ups and downs in any market in any time. Your right in what your saying with business growth and all but there has to be a point of slowdown. otherwise our money wouldn’t be worth anything.
I just watch and see what happens at this stage. when i learn and understand more I might be able to make some more substantial claims on the whole thing.