NZ Cuts Interest Rate to Record-Low 3.5%


New Zealand cut its interest rate by 1.5 percentage points to a record low and said there’s room for further reductions to steer the economy out of a deepening recession.

Reserve Bank of New Zealand Governor Alan Bollard reduced the official cash rate to 3.5 percent in Wellington today, lower than most economists expected in a Bloomberg survey. News coming from our trading partners is very negative,” he said. It is appropriate to take the cash rate to a more stimulatory position and to deliver this reduction quickly.”

The Federal Reserve earlier left its benchmark rate as low as zero and said it’s prepared to buy Treasuries, as policy makers worldwide try to revive lending and resuscitate their economies. Bollard has pared New Zealand’s borrowing costs by 4.75 points since July, the most aggressive reductions behind Moldova among 54 central banks monitored by Bloomberg.

The International Monetary Fund yesterday said world growth will be 0.5 percent this year, the weakest postwar pace. That’s down from a November prediction of 2.2 percent. Exports are equivalent to 30 percent of New Zealand’s gross domestic product.

New Zealand’s economy slipped into a recession in the first quarter of last year amid a drought, soaring energy costs and a slump in the housing market. As the world’s largest economies contract, demand for exports is falling, prolonging the slump.

Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, yesterday cut its milk price forecast for the third time in four months and delayed paying a dividend, citing weakening demand.

Sales at Hallenstein Glasson Holdings Ltd., a clothing retailer, fell 4 percent in the four months ended Dec. 14 as New Zealand consumers rein in discretionary spending. Outlays on credit cards fell for a third month in December, the longest losing streak on record, the central bank said this week.

Bollard called on lenders to play their part in the economic adjustment process” by passing on lower funding costs to consumers and companies.

Today’s move takes the official cash rate to the lowest since the Reserve Bank began using the measure in March 1999 and matches Bollard’s record cut in December.


TradingEconomics.com, Bloomberg
1/28/2009 5:41:53 PM