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Reserve Bank Governor Alan Bollard - Source: ONE News -
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It was quite a bold call not to cut given the pressure coming on the Kiwi dollar and the recent falls in export returns.
However, taking a breather now is understandable.
As Dr Bollard points out there has been a lot of economic stimulus provided from earlier cuts and there are some so-called green shoots emerging in both the local and international economy.
In New Zealand's case it appears to be the housing market that is giving Dr Bollard some confidence. Better sales data over the last couple of months has forced the bank to take a slightly less pessimistic view on house prices and it seems prices may not have a long way further to fall.
Although, Dr Bollard is warning a return to the boom days of the housing market two years ago would not be sustainable.
Of course, one of the things driving the stabilisation in the New Zealand housing market has been the substantially lower interest rates available to home buyers. So, there will be some out there who fear the failure to cut the OCR might stifle that tentative recovery, especially as long term fixed rates have been climbing lately on their own accord.
However, I think it is fair to say that even if Dr Bollard cut today it is unlikely banks would have cut their fixed mortgage rates.
Longer term rates have been going up in New Zealand because of international pressures - mainly the need for the US government to offer higher interest rates as it struggles to raise huge amounts of debt and fund its deficit.
There is nothing we can do about that. Perhaps better to hold fire now and save the 50 points of cuts he has left up his sleeve. (Assuming he sticks to his self imposed bottom of 2%).
It is no surprise to see that it is short term interest rates where Dr Bollard has centred his usual jaw boning attack.
He's done this by reiterating that there is still scope for more OCR cuts and that the OCR will stay low until at least late 2010.
He's also stressed to the Banks that he wants to see them bring down floating rates further. Few moved after the last 50 basis point cut in April.
What about the currency?
Couldn't a cut have pulled that down to help our export led recovery?
Well, maybe in the short term, but Dr Bollard made it pretty clear that he thinks the currency is being solely driven by the fluctuations in the US currency and US economy. There is little point fighting that.
Intervention would be futile.
He seems content to let the market sort out the currency for now - the argument being that if the currency stays too high and starts to really hurt New Zealand's recovery investors will recognise this and pull out of the Kiwi.
Today is also of course good news for savers. Deposits have taken a hammering over the last year and this will give them something of reprieve.
Mortgage holders on the other hand can rest easy that for the next year at least the floating rate should stay low... beyond the two-year mark though it is much harder to predict.
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