(RTTNews) - Responding to the world financial turmoil threatening New Zealand's economy, the Reserve Bank of New Zealand Thursday slashed interest rates by 150 basis points.
RBNZ Governor Glen Bollard announced that the Official Cash Rate would be 5.00 percent, from the previous rate of 6.50 percent.
"The ongoing financial market turmoil and the marked deterioration in the outlook for global growth have played a large role in shaping today's decision," said Bollard in a statement accompanying the decision announcement. "Activity in most of our trading partners is now expected to contract or grow only very slowly over the next few quarters. Economic activity in new Zealand will be further constrained as a result."
The Thursday reduction was the largest since the RBNZ began using the Official Cash Rate in 1999 and brings the rate to its lowest level in eight years.
Bollard said the broad global financial economic crisis made the steep reduction necessary. "Given recent developments in the global economy, the balance of risks to activity and inflation are to the downside," he said. "Thus it is appropriate to deliver this reduction quickly to support the economy and keep inflation from falling below the target band."
Since entering its reduction mode in July, the RBNZ has slashed the OCR by 3.25 percent, putting the nation's monetary policy in what the bank Thursday called "an expansionary position."
The RBNZ move follows action by the Reserve Bank of Australia on Tuesday to cut interest rates 100 basis points to 4.25 percent.
Bollard said the effectiveness of the rate reduction was tied to individual banks' willingness to pass the interest rate cuts on to borrowers. "To ensure the response we are seeking, we expect financial institutions to play their part in the economic adjustment process by passing on lower wholesale interest rates to their customers," Bollard's statement said.
The RBNZ, which said it would continue monitoring world and domestic economic developments to determine any future rate changes. The next scheduled meeting to review the OCR is scheduled for January 29.
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