It is fitting that the date is September 11 because the Reserve Bank moved more decisively today to cut rates than it has since the wake of the attack on the World Trade Centre seven years ago, lowering the official cash rate by 50 basis points to 7.5
per cent.
In effect governor Alan Bollard is applying a cattle prod to the banks to lower mortgage rates. He is up against the fact that with a preponderance of fixed rate mortgages it takes a lot longer than it used to for cuts in the official cash rate to flow through to the average mortgage bill.
The Reserve Bank notes that the margin between local wholesale interest rates and mortgage rates has widened to above-average levels.
"Ah yes", the banks have been saying, "but the global credit crunch means we have to pay a bigger premium above that for the large part of our funding we have to import. So don't expect immediate relief in mortgage rates."
By pushing local rates down more than expected Bollard has undercut that excuse.
The reason he wants to is that he is taking a bleaker view than six weeks ago about the economic outlook. Like the Treasury he sees three quarters of economic contraction this year and the possibility of only feeble growth when it resumes.
The recent fall in oil prices has also made this decision easier.
But it is a bold and risky one. He is slashing rates at a time when inflation, the bank reckons, is approaching 5 per cent, inflation expectations have crept up to 3 per cent and the labour market remains "very tight".
For the second time in six weeks he has wrong-footed the market as it had assigned only a low probability to a 50 point cut today.
Snide references to "Dr Timid" should now cease.
