Rates cut following devastation
(10 March 2010 – New Zealand) New Zealand's central bank slashed interest rates on Thursday to bolster confidence in the economy after an earthquake devastated the country's second-biggest city last month, and it looked set to stay on hold for most of the year.
The Reserve Bank of New Zealand (RBNZ) cut its cash rate (OCR) by 50 basis points to 2.50 percent, taking it back to its lowest level in modern history and aiming to give the economy, already struggling before the quake, a badly needed tonic.
The bank said it had acted pre-emptively to counter the impact of the Christchurch earthquake, which threatened to tip an already-faltering economy back into recession. New Zealand has been struggling with persistently weak domestic demand.
'Future monetary policy adjustments will be guided by emerging economic data,' Governor Alan Bollard said in a statement, adding that the current policy accommodation would need to be removed once the rebuilding phase kicked in.
'This will take some time,' Bollard added.
The bank also said it had scaled back its economic projections due to the earthquake, because it was very difficult to know how large or how long-lasting this impact would be.
Initial estimates of the cost of the Christchurch quake are as high as NZ$15 billion (A$11 billion), equivalent to about 8 percent of the New Zealand's gross domestic product.
However, the bank forecast the 90-day bank bill future , a barometer for the official cash rate, to be around three percent at the end of the year.
The New Zealand dollar initially fell nearly half a cent to a five-month low of $0.7338, from $0.7385/90 then recovered to settle around $0.7350. Against the Australian dollar, the kiwi is hovering at around 19-year lows.
The bank said it had acted pre-emptively to counter the impact of the Christchurch earthquake, which threatened to tip an already-faltering economy back into recession. New Zealand has been struggling with persistently weak domestic demand.
'Future monetary policy adjustments will be guided by emerging economic data,' Governor Alan Bollard said in a statement, adding that the current policy accommodation would need to be removed once the rebuilding phase kicked in.
'This will take some time,' Bollard added.
The bank also said it had scaled back its economic projections due to the earthquake, because it was very difficult to know how large or how long-lasting this impact would be.
Initial estimates of the cost of the Christchurch quake are as high as NZ$15 billion (A$11 billion), equivalent to about 8 percent of the New Zealand's gross domestic product.
However, the bank forecast the 90-day bank bill future , a barometer for the official cash rate, to be around three percent at the end of the year.
The New Zealand dollar initially fell nearly half a cent to a five-month low of $0.7338, from $0.7385/90 then recovered to settle around $0.7350. Against the Australian dollar, the kiwi is hovering at around 19-year lows.
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