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Thursday, January 29, 2009


Initial reaction - as expected. Our dollar has tanked with the news that the Reserve Bank has slashed 1.5% points off the OCR - now at 3.5%.

Reserve Bank Governor Alan Bollard commented that “the news coming from our trading partners is very negative. The global economy is now in recession and the outlook for international growth has been marked down considerably since our December Monetary Policy Statement.

“Globally, there has been considerable policy stimulus put in place and we expect this to help bring about a recovery in growth over time. However, there remains huge uncertainty about the timing and strength of a recovery.

“The extent of the decline in global growth prospects and the ongoing uncertainty has played a large part in today’s decision. We now expect the impact on New Zealand of these developments to be greater than we did in December, as a result of a more negative outlook for the terms of trade and exports, and tighter credit conditions.

“Inflation pressures are abating. We have confidence that annual inflation will be comfortably inside the target band of 1 to 3 percent over the medium term.

“Given this backdrop it is appropriate to take the OCR to a more stimulatory position and to deliver this reduction quickly.

“Today’s decision brings the cumulative reduction in the OCR since July 2008 to 4.75 percentage points. Lower interest rates will have a positive impact on growth, alongside a lower exchange rate and fiscal stimulus, provided firms and households do not unnecessarily contract their spending.

“To ensure the response we are seeking, we expect financial institutions to play their part in the economic adjustment process by passing on lower wholesale interest rates to their customers. This will help New Zealand respond flexibly.

The banks failed to pass on the RBNZ's cuts last time. Gareth Morgan on RNZ predicted 4% mortgage rates by the end of the interest rate cutting round - sometime this year. I posted previously on how our Aussie-owned cartel of retail banks have not passed on the cuts and instead used the opportunity to increase their gross margins. Take Kiwibank - the best - 6.49% on 1yr fixed mortgage, before the last cut in early December, now 5.99% on their site. ASB 6.45%. They play this game whereby they cut a tiny bit in advance of an OCR announcement and pretend that they are ahead of what is going on rather than a laggard.


At 29/1/09 10:46 am, Blogger Truth Seeker said...

The "stimulatory position" seems to be about discounting NZ goods to the world by trashing our dollar. That means we all get a BIG pay cut as far as real purchasing power is concerned. At the same time, if there were to be permanent, it might make more sense to make thing here rather than import. But that is FAR from certain and anyone would be mad to assume this situation would remain for long enough to see a return on any such investment. Chances are that in 6 months it would be cheaper to resume importing from China....and anyone investing locally will be screwed.

The low OCR *only* makes sense overall if we also have import tarrifs. But don't and probably won't....so we all just got a lot poorer by global standards.


At 29/1/09 11:02 am, Anonymous Samclemenz said...

Isn't it obvious by now that the banks are using this global economic meltdown to their advantage instead of supporting reform needed by their previous greedy structuring, or learning anything from their grab for the gold ring?
Isn't is also obvious that ALL Government intercession is being done like a blind leading the blind scenario?
This is a total bullshit global kneejerk reaction that's designed to bailout the Bankers and Corporatists that caused this disaster through their greed to begin with! It's an extreme extortion levied on tax-payers who have grown tired of watching their jobs outsourced to China or India or other slave wage markets under the duisguise of global market economies.
This recent Standard and Poors / IMF measure is being accomplished in collaboration with Corporatist and Financial institutions as a manner of revenge for people not continuing to spend money to support the consumer based system Bankers and Corporatists thought would last forever and allow them to perpetuate their already huge fortunes at our expense.

At 29/1/09 11:12 am, Anonymous Anonymous said...

What a joke,so the people with mortgages get relief,but then again because the dollar is tanking everything else gets more expensive(petrol etc!) and interest on savings(for those that save) goes down.
So in reality the savings in interest is being offset to some extent by this.
This economic system is a fucking joke!

At 29/1/09 2:58 pm, Blogger peterquixote said...

Bollard says

“Inflation pressures are abating. We have confidence that annual inflation will be comfortably inside the target band of 1 to 3 percent over the medium term"

I think Bollard means that Deflation will be in the range of 1 to 3%.
That is the price of goods and services will decrease by that amount.
We are now paying the price of our 'Capital Gains Free' policy.

At 30/1/09 8:37 am, Anonymous Anonymous said...

yes, this system is a fuckin joke ~ wall street paid out $18.4 billion last year in bonuses

At 30/1/09 8:43 am, Anonymous Anonymous said...

oh well, maybe Jonkey will break another limb and auction off another cast , put it towards fixing the economy, seems to be the only idea for raising funds he's come up with since he got the job.

John !!!??? are you there ??? .... lookin' for a bit of leadership here mate


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