The visible hand in economics

RBNZ to cut rates today?

Posted on: October 9, 2008

So a whole bunch of central banks have cut rates overnight (ht Rates Blog, Big Picture). Australia cut 100 basis points the other day.

If the RBNZ ever cut rates inter-meeeting, it would currently sound like a fair time. In order to avoid it sounding like a panic they could say:

  1. Funding costs have risen markedly, and the Bank’s goal is to keep funding pressures consistent with their goal in September until the next meeting – ergo, we need an OCR cut,
  2. The Bank wishes to keep a certain interest rate differential with the rest of the world. With the rest of the world (virtually) cutting 50 basis points more than we had anticipated in September, it seems appropriate to lower our OCR by 50 basis points now.

Today is the 9th of October – the meeting is in 19 days. I think there is a fair chance the RBNZ may be pushed into cutting today, or at least announcing it.

I don’t have a problem with them doing it – as long as they are willing to lift rates relatively once (if) funding pressures ever come off.

Update: Ipredicit puts up a prediction stock on a possible cut today!!! (ht Nigel Pinkerton)

Update 2: The collapse in our currency (the TWI has fallen to 60 – we are talking 2003 levels) may prevent the Bank cutting. However, I am not sure how much attention investors are actually giving to our OCR at the moment – as a result, the cut may not have a big impact on the dollar (relative to global events).

Update 3: Good articles by David Hargreaves. Looks like the RBNZ will not go after this statement.

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9 Responses to "RBNZ to cut rates today?"

Off Topic, but this is a great blog as it is a learning blog, it just takes a bit of time to absorb.

Thanks John 🙂

I appreciate all the comments on issues from you, keep them coming 🙂

What real loss is there by RBNZ waiting another two weeks to cut rates?

“What real loss is there by RBNZ waiting another two weeks to cut rates?”

The Bank wants to prevent excessive volatility in interest rates. As a result, we have to ask what the Bank’s target is between meetings – is it the OCR, or is it some level of market interest rates. If it is market interest rates then we will need a big cut in the OCR to try to get back to that level.

With the latest release it seems there’ll be no announcement until 2 weeks time.

“With the latest release it seems there’ll be no announcement until 2 weeks time.”

Indeed – how interesting!

[…] The act of committing to deposit insurance could suggest to people overseas that our banking system is also in meltdown.  Fundamentally, people assume that the government may have some information that they do not.  To external people our banks look safe, but seeing the fact that the NZ government has come in to offer an insurance scheme to banks may shake this view.  This type of signaling issues is probably one of the reasons why the RBNZ didn’t cut rates a few days back. […]

Mines mistake twice. First time – when choosing a profession.

[…] emergency cut was the right choice 16 10 2008 I was surprised at the time, but not doing an emergency cut appears to have been the right choice – go […]

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