New Zealand’s central bank cut the official interest rate by a record 1.5 percentage points yesterday to tackle the fallout from the global financial crisis.
Reserve Bank of New Zealand Governor Alan Bollard said the cut in the official cash rate to a five-year low of 5 percent was largely prompted by “ongoing financial market turmoil and the marked deterioration in the outlook for global growth.”
“Activity in most of our trading partners is now expected to contract or grow only very slowly over the next few quarters,” Bollard said. “Economic activity in New Zealand will be further constrained as a result, compared with our view in October.”
PHOTO: AP
The latest cut — the largest since the official cash rate was introduced in 1999 — followed a 1 percentage point cut at its last review six weeks ago, and the official rate has fallen 3.25 percentage points since July.
Central banks around the world have been slashing interest rates as the impact of the global financial crisis puts the brakes on economic growth.
Also yesterday, Indonesia’s central bank unexpectedly lowered interest rates for the first time in a year to shield Southeast Asia’s biggest economy from the global recession.
Governor Boediono and his seven colleagues reduced the benchmark rate to 9.25 percent from 9.5 percent, Bank Indonesia said in a statement in Jakarta.
“The decision to cut the rate was taken after evaluating financial and economic prospects, both in the domestic and global market,” Bank Indonesia said yesterday. “The impact of the financial crisis on the global economy is getting real.”
Indonesia joins other Asian central banks in reducing borrowing costs to help boost growth, after the government cut its economic-growth forecast for next year to a seven-year low of 4.5 percent. The Bank of Thailand on Wednesday slashed its key policy rate by the most ever.
“Today’s rate cut tells you that growth is the overarching concern right now,” said Lim Su Sian, an economist at DBS Group Holdings Ltd in Singapore, who forecasts a quarter-point reduction every month till March. “Eventually the global slowdown must have some kind of impact on the economy and Bank Indonesia is probably aware of it.”
Australia cut its key interest rates by a percentage point this week and the European and British central banks were expected to make big reductions yesterday.
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