KEY POINTS:
Following a week of turmoil on world financial markets, ANZ bank is predicting official interest rates in New Zealand will drop as low as 4.75 per cent next year.
The Reserve Bank surprised markets last month with a cut of half a percentage point to the Official Cash Rate (OCR), taking it to 7.5 per cent, with its next rate announcement due on October 23.
ANZ said after the Australian central bank cut its policy rate by 1 percentage point last week, it immediately changed its forecast for next week's review in this country to 100 basis points as well.
Today ANZ said it expected the Reserve Bank to follow next week's cut with a further 50-basis point easing in December. That would take the OCR to 6 per cent by the end of the year.
"We have pencilled in 25bp cuts for each meeting in 2009 until the OCR reaches 4.75 per cent," ANZ said.
It is also predicting a "far more aggressive and elongated currency response", with the New Zealand dollar dropping to US55c and staying lower for longer.
The kiwi - which was a touch under US60c early afternoon today - was "smashed" last week.
The bigger story was now one of jobs. They were disappearing fast if results from last week's Quarterly Survey of Business Opinion were to be believed, and those results did tie in with anecdotes, ANZ said.
It was not all worrying news, with the household sector set to get cash flow relief through tax cuts, lower interest rates and less inflationary pressure as commodity prices fell.
Higher farm gate prices and good soil moisture were setting the stage for a better farming year in 2008/09, compared to the drought damaged 2007/08 year, ANZ said.
Indicative international prices for sheep meat, wool, beef and venison were up on last year and a weaker New Zealand dollar was helping farm gate prices. Year to date pip and kiwifruit returns from the 2008 harvest were also up on 2007.
The exception was dairy, where commodities were around 20 per cent down in New Zealand dollar terms from the peak last August.
- NZPA
