The Reserve Bank has cut the Official Cash Rate to 2.25 percent, the lowest it has ever been with predictions it could drop a further 25 basis points to 2 percent later this year.
Reserve Bank Governor, Mr Graeme Wheeler justified his decision for cutting rates by explaining that threats such as weaker dairy prices, low inflation, and slowing global growth, particularly in China and Europe had become too great not to act upon.
The cuts in interest rates come as a welcome relief to those in the dairy industry after Fonterra slashed its forecasted milk price once again this month to $3.90 per kg of milk solids. The latest fall in dairy prices have some analysts predicting that 25 percent of dairy farms could fail if the milk prices don’t rise soon.
However, as lower interest rates look set to try and aid dairy farmers and other exporters, those looking to get into the Auckland housing market will be discouraged due to cashed up investors in the nations largest city having access to greater funds if banks lower interest rates once more.
However, Wheeler also warned that if the low OCR led to a resumption of rapid house price appreciation, rates would need to rise again.
Last year the Reserve Bank cut the Official Cash Rate four times, beginning at 3.5 percent at the start of 2015 and ending the year at 2.5 percent.
The Reserve Bank also expects to see GDP grow largely at the same pace for the near future with low interest rates, strong tourism and large construction works taking place.