11 June 2009
As expected the RBNZ left its official cash rate unchanged at a record low 2.5 percent on Thursday, as it takes time to assess the impact 575 basis points of rate cuts since July 08. The RBNZ reiterated that it expected to keep the cash rate at its current level or lower until the latter part of 2010.
However they did signal tentative signs of optimism. "There remain some material downside risks to activity and inflation, but for the first time in some months we can also identify some clear upside opportunities for activity. One such area is a potential rebound in household spending and residential investment as a result of the rise in net immigration and the pick-up in the housing market. Ultimately, however, we do not think such a rebound in spending would prove sustainable given the soft outlook for employment, wages and farm incomes and high levels of household debt.”
It is widely believed that the absolute bottom for the cash rate would be 2%. The RBNZ reinforced this view by saying" We have cut the OCR by a large amount over the year. We expect the effects to pass through to more borrowers over coming quarters as existing fixed-rate mortgages come up for re-pricing. Although rising longer-term interest rates overseas are placing upward pressure on longer-term lending rates here, there is room for further reductions in shorter-term lending rates.