Going down: OCR cut to 4 per cent 'in the bag'

The money markets regard a cut in the official cash rate from 5 to 4 per cent on Thursday as in the bag and see about a 50:50 chance that governor Alan Bollard will drop the rate to 3.5 per cent.

Since last July the Reserve Bank has lowered the OCR by a cumulative 325 basis points, dispensing ever-larger cuts as the flow of economic data, foreign and domestic, has worsened markedly.

Since the December review, when he cut by 150 basis points, economists' forecasts of growth among New Zealand's trading partners have been slashed, to the point where they are now expected to contract this year. Hopes for an export-led recovery are accordingly dashed.

At the time of the December review consensus forecasts for trading partner growth in 2009 were 1.2 per cent - feeble by historical standards but still positive.

It suggested the world was facing a recession comparable to the early 1980s when global growth slowed to 0.9 per cent, Westpac chief economist Brendan O'Donovan said.

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Posted: 27 Jan 2009

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