Mega cut means rate could drop to 2pc

Another mega rate cut from the Reserve Bank yesterday has pushed down economists' expectations of how low the official cash rate will finally go to the 2 to 2.5 per cent range from 2.5 to 3 per cent previously.

Wholesale interest rates fell - the one-year swap rate by 30 basis points - and the kiwi dollar fell a cent to US52c.

Westpac chief economist Brendan O'Donovan, one of only two forecasters to pick the 150 basis points cut delivered, said governor Alan Bollard had shown he was prepared to do what it takes in the face of a "horrendous" outlook for the world economy.

Yesterday's cut takes the OCR to a new low of 3.5 per cent.

Bollard, who two months ago was prepared to speculate that the economy might be coming out of recession, now believes it will last until the middle of next year. And "huge uncertainty" about the timing and strength of a recovery remained, he said.

He was asked how low the OCR could go before he was flogging a dead horse.

To read the full NZ Herald story click here

Posted: 30 Jan 2009

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