The OCR has been slashed by 50 basis points today to a record low of 1%. The Reserve Bank has gone a step further than anticipated, with speculators estimating the new rate would be 1.25%.
It was agreed by the bank’s Monetary Policy Committee that a lower OCR is necessary to continue to meet employment and inflation objectives.
After debating whether the OCR should be reduced now by 50 basis points, against the benefits of reducing it by just 25 and communicating an easing bias, the Committee reached a consensus on reducing it by 50 basis points.
Low interest rates and increased government spending is expected to support a rise in demand over the coming year. A rise in business investment is also expected to be driven by low interest rates and continued capacity restraints.
We will be watching closely to see how this affects mortgage interest rates. ASB is already indicating a decrease in their variable rate.
You can read more on the Reserve Bank website.