Reuters New Zealand
New Zealand cenbank cuts rates, sees further easing
Thursday July 24, 12:48 PM
(Adds Reuters poll, updates market reaction)
* NZ central bank cuts rates by a quarter point to 8 percent
* RBNZ expects further easing to counter slowing economy
* NZ dollar hits one-month low after announcement
By Kazunori Takada
WELLINGTON, July 24 (Reuters) - New Zealand's central bank cut interest rates for the first time in five years on Thursday, and said further reductions were likely to counter an economy seen in recession, sending the currency sharply lower.
The market had been split ahead of the decision, which came as recent data suggested the economy is likely in recession but also suffers surging inflation.
The Reserve Bank of New Zealand (RBNZ) cut its cash rate by a quarter percentage point to 8 percent, after being on hold for a year, saying the downturn in activity would gradually dampen rampant inflation pressures.
"There'll be a series of 25 basis point cuts until they think they've done enough, and that should extend into early next year," said UBS senior economist Robin Clements.
A Reuters poll conducted after Thursday's announcement showed all 15 economists expect the central bank to cut rates again at the next review on Sept. 11 and a majority see the cash rate falling to 7.25 percent by the year-end. [ID:WEL169136]
New Zealand's attractive interest rates have been among the highest in countries of the Organisation for Economic Co-operation and Development (OECD).
Central bank Governor Alan Bollard said the rate cut would help ease tight credit conditions caused by a deterioration in the international financial market, and a further reduction in the official cash rate (OCR) was likely.
"Provided that the outlook for inflation continues to improve and there is no excessive exchange rate depreciation, we would expect to lower the OCR further," he said in a statement.
It was the first easing in policy since July 2003 and comes after six consecutive reviews held rates at a record 8.25 percent.
KIWI TUMBLES
The New Zealand dollar initially slid more than 1 percent to a six-month low of $0.7410 NZD=D4 before trimming its losses to settle around $0.7440. Short-term debt rallied, with yields, which move inversely to prices, around 10 basis points lower.
The kiwi, which hit a post float 23-year high in March, on the back of its high yield, is now seen heading lower.
"It's going to signal the end to the kiwi dollar. I would expect to see a progressive decline back to the mid-65 cents by mid-next year," said TD Securities senior strategist Joshua Williamson.
The central bank, which lifted interest rates by a total of 1 percentage point last year to cool robust domestic demand, had said last month it was likely to ease policy later this year as a slowing economy offset inflation.
Financial markets had priced in a 50-50 chance of a cut on Thursday.
Earlier in the month, data showed inflation raced to a higher-than-expected 4 percent in the second quarter, its highest level in two years and further above the central bank's 1-3 percent target range.
But widespread weakening in activity has convinced many that the economy has fallen into its first recession in more than a decade.
The economy contracted a seasonally adjusted 0.3 percent in the January-March quarter, as tight credit conditions and rising costs weighed on consumer spending and drought hit farm production.
Most analysts think second-quarter activity has been as bad or worse, and the weakness may have spilled over into the third quarter. (Editing by Jonathan Standing and Jacqueline Wong)
Next Article: New Zealand stocks up 2.7 pct at 4-week high
Previous article: NZ cenbank cuts rates, sees further easing
Top Headlines
Offshore Australia Bazzard-1 Well Spuds on ACOR's ORRI under VIC/P53 with Est. Possible Reserves of 153,000,000 Barrels of Oil or Approximately $1
Wednesday September 24, 01:26 AM - Busiwire
Australian-Canadian Oil Royalties Ltd. (herein called ACOR) (OTCBB:AUCAF) is pleased to announce the start of the Bazzard-1 W .. Read More
NZ market burbles rather than bubbles
Tuesday September 23, 06:22 PM - NZPA
The New Zealand stock market had a quieter day today as overseas ructions quietened down and it finished less than 1 percent .. Read More
NZ dollar ignores P4 news and follows the pack
Tuesday September 23, 05:42 PM - NZPA
The New Zealand dollar took its lead from global markets today, ignoring news that the United States would join New Zealand, .. Read More
Calculators
Copyright © 2008 Yahoo! All rights reserved.
Yahoo!Xtra: A Yahoo!7/Telecom New Zealand Company.