New Zealand’s central bank yesterday cut the official interest rate by half a percentage point to a record low 3.0 percent as the impact of the global economic crisis worsened.
Reserve Bank of New Zealand (RBNZ) Governor Alan Bollard said the world economy had deteriorated very rapidly late last year, prompting the cut in the official cash rate to its lowest level since it was introduced in 1999.
“While monetary and fiscal policy responses in many countries have been substantial, we still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009,” Bollard said. “The timing and extent of global recovery remain highly uncertain.”
The governor said rate cuts since the middle of last year — when the official rate stood at a record high 8.25 percent — along with government fiscal stimulus measures and a lower New Zealand dollar would help support the local economy.
“Therefore we expect to see activity troughing in the middle of this year and then gradually picking up thereafter,” he said. “However, the scale of the global financial crisis is such that there is great uncertainty about future economic developments and there is a risk that the recovery may occur later and be more protracted than we anticipate.”
Bollard said future interest rate cuts would be smaller than the 1.5 percentage points cut in recent months and the central bank was not planning to cut rates to near zero as seen in some other countries.
He told journalists the bank was comfortable with forecasts that the official rate could fall to a low of 2.5 percent.
But Bollard added: “Were the economy to have more bad news, it’s not inconceivable that it could go lower, like 2 percent.”
New Zealand slipped into recession at the start of last year because of the impact of drought and a housing market slowdown, and the slump has been prolonged by the impact of the global economic crisis.
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