And the Reserve Bank cuts …
Posted December 4, 2008
on:So, the Reserve Bank has just announced that it has cut by … I don’t know, its 7.30am for me so the Bank is yet to announce it. We have discussed this wildly though (here, here, and here) – so it will be good to see what has happened.
Feel free to do your own announcement in the comments (RBNZ site is here), and I will get to putting an update on this by about 9.20am.
Update: They cut by 150bp – I was wrong and everyone else was right π . DG was right when he said Monday’s numbers were very important – the Bank was looking for a big cut but these numbers definitely set the tone for cuts to come. I am nervous about the size of the contraction in consumption that is being discussed – low petrol prices will get some people spending. But as long as no-one will lend to people I suppose it doesn’t matter π
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16 Responses to "And the Reserve Bank cuts …"
“I called the Aus rate cut and swept the pool at work. My pick is 1.5 for NZ.”
tick
no pool
it was a call made by feel
with sentiment heading south i thought that the respective RBs would try to surprise everyone to shake a bit of “sense” into them
what would they see as the risks of dropping the OCR too far?
Will this really have a major impact on our spending?
There may be a number of mortgage holders who have held back fixing their terms waiting for this, but a lot of us are locked in to higher rates.
New entrants to the property market? You now need a bigger deposit, so not a lot of movement here.
Credit cards rates are very slow to move down, and many have already maxed out their cards.
I know I haven’t covered everything here – I’m interested to see other angles on this one.
MikeG,
Will the effort finally get the economy moving again? Frankly, I doubt it.
Lower mortgage rates can help people buy housing, but only if they feel secure enough in their jobs, and confident enough in their financial future to take the plunge. Given that consumers are struggling with debt, especially housing debt, fearful of layoffs, and waiting for housing prices to hit bottom, it’s unlikely that they’ll react to rate cut with a spending spree.
Consumers don’t react to debt like companies, though the past government behaved like they do.
Giving companies better access to credit allows them to meet payrolls while they adjust their production and expenses in response to tighter economic condition. But families who can’t pay their bills can’t lay off a spouse and kids.
For them, debt grows from bad to worse as interest charges accumulate.
Sorry to be so negative
PG – no, I don’t think that you are being negative, just realistic.
Companies at the moment seem to be in cost avoidance or even cost reduction mode at the moment. This is not being driven by the cost of money, it’s about the revenue (or lack of) coming through the door.
“If growth has been based on borrowing and accumulating debt, then now is probably the time we have to pay it back. If that is the case then we should just get on with it.”
Agreed – all I have been trying to say is that an interest rate cut is not the magic bullet that the Govt and others are looking for.
[…] The key point was the decline in own activity expectations – with a net 14% of firms expecting their own level of activity to contract!Β In conjunction with the RBNZ inflation expectations number (specifically the surveys wage growth measure) this was one of the “green lights” for the massive rate cut in December. […]
[…] They did 150 πΒ Global growth is just too important – but then, why isn’t their terms of trade track […]
1 | Gareth
December 4, 2008 at 9:56 am
The Yahoo Xtra page has the headline “Interest rate slashed TO 1.5%”
Ummmmmm, you may want to check that Yahoo…