Record low OCR at 1%

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Posted 19 months ago by Pope & Co. Mortgages

The Reserve Bank has today cut the OCR to a record low of just 1%. While a lowering of the rate was expected, today's 0.5 percentage point drop is more than the widely anticipated 0.25.

The bank's Monetary Policy Committee discussed the benefits of reducing the OCR by 25 basis points and communicating an easing bias, against reducing it by 50 basis points now. The consensus was to cut it by 50 basis points to 1.0.

The Committee agreed that "a lower OCR is necessary to continue to meet its employment and inflation objectives".

"GDP growth has slowed over the past year and growth headwinds are rising. In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets."

In the announcement the bank said that low interest rates and increased government spending will support a lift in demand during the next year. It is expected that low interest rates and continued capacity constraints will also encourage a rise in business investment.

ASB has already responded to the cut with a reduction in their variable home loan rate to 5.2 percent from 14 August.

Read the full announcement at the Reserve Bank website.

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