ANZ National cuts interest rates as big OCR cut tipped

Alan Bollard. Photo / Mark Mitchell

New Zealand's largest bank, the ANZ National bank, has announced sweeping cuts to its home loan interest rates.

The cuts, which range from 0.2 per cent for two year terms, up to 0.89 per cent for five year terms, come as expectations grow of another big fall in the Official Cash Rate, when the Reserve Bank next makes an announcement on January 29.

The new rates come into effect tomorrow, January 15.

Many economists expect the Reserve Bank will cut the official cash rate by another full percentage point later this month after business confidence plunged to a 39-year low.

Economists used words like "dreadful", "terrible" and "dire" to describe the results of the New Zealand Institute of Economic Research's latest quarterly survey of business opinion.

The only good news in the survey, they said, were the indicators of inflation pressure, which have dropped sharply, suggesting there is nothing to give Reserve Bank Governor Alan Bollard pause as he contemplates the next interest rate cut.

The flipside of the survey's feeble activity indicators is a sharp fall in its inflation gauges. A net 3 per cent of firms say they intend to cut their selling prices over the next three months. That is the weakest reading for 10 years and is consistent with little or no inflation by the second half of this year.

A net 17 per cent of firms say it has become easier to find skilled labour and a net 43 per cent say it is easier to find unskilled labour - in both cases the highest since 1991.

Rate changes today

ANZ

2 year : Down from 7.2 per cent to 7 per cent

3 year : Down from 7.55 per cent to 7.1 per cent

4 year : Down from 7.95 per cent to 7.1 per cent

5 year : Down from 7.99 per cent to 7.1 per cent

National Bank:

2 year: Down from 7.2 per cent to 7 per cent

3 year: Down from 7.2 per cent to 7.1 per cent

4 year: Down from 7.5 per cent to 7.1 per cent

5 year: Down from 7.7 per cent to 7.1 per cent

Almost all the survey's responses came in after the Reserve Bank cut the OCR 150 basis points on December 4, bringing its total easing since July to 325 points.

The fact that the survey indicators had deteriorated so sharply even after such aggressive policy action testified to how powerful the forces influencing the economy were, Borkin said.

"It is clear that the Reserve Bank has more work to do."

So does the Government, says UBS economist Robin Clements.

Accepting a sizeable fiscal stimulus through tax cuts and infrastructure spending is already in train - amounting to around 5 per cent of GDP over 2009 and 2010 - there was still a need for some tangible action to break the downward spiral, Clements said.

He suggested a cut to fuel taxes, which make up more than 40 per cent of the price at the pump, as something that could be done quickly, would have a widespread effect and could be easily reversed when appropriate.

HERALD ONLINE/BRIAN FALLOW