KEY POINTS:
National Party leader John Key today gave Reserve Bank governor Alan Bollard the message that New Zealand interest rates need to come down, and the sooner the better.
"Overnight we saw five or six central banks getting together and cutting interest rates and the Australians cut interest rates two days ago," he told reporters on the campaign trail today.
"While the Reserve Bank governor is independent, my view is that interest rates do need to come down in New Zealand."
Following the Reserve Bank of Australia's decision to cut rates by 1 per cent on Tuesday, the world's other major banks went on an interest rate offensive overnight.
The US Federal Reserve, the European Central Bank, Bank of England and central banks in Sweden, Canada and Switzerland all cut interest rates by half a percentage point. China joined in cutting 27 basis points off its key rate.
Dr Bollard said today the bank was monitoring international developments very closely and he thought measures it had already taken were sufficient at this stage.
The bank is due to make a decision on interest rates on October 23, and economists are increasingly predicting it may cut the rate by up to 100 basis points, or a full percentage point, from the current 7.5 per cent.
Dr Bollard said NZ's situation was different to other overseas economies.
"At the moment the New Zealand financial system is working satisfactorily. It has held up relatively well in the face of the volatility and disruptions that we are seeing internationally," Mr Bollard said.
"New Zealand banks have high-quality assets. Fortunately they do not have the poor quality assets that have proved so damaging overseas."
But Mr Key said there was international turmoil in financial markets.
"I think it would be in New Zealand's best interests for those interest rates to come down as rapidly as they can, hopefully before October 23," he said.
"You've got a situation where Australia cut by 100 basis points, that's putting a lot of pressure on our exchange rate as we rise higher against the Australian dollar."
New Zealanders were under a lot of financial pressure, Mr Key said.
"I think for the health of the banking system, and for confidence in the New Zealand economy, interest rates should come down now.
"It's the reserve bank governor's decision and I'm sure he'll monitor that, but I think they should be going lower, a minimum of 50 basis points and you can't rule out a bigger cut."
A spokesman for Finance Minister Michael Cullen said the bank was independent of politicians and it would not be appropriate for the Government to say anything that could be interpreted as putting pressure on it.
Instead of cutting rates, Dr Bollard today moved to free up liquidity in the New Zealand financial system.
It will temporarily lend on the basis of fully-secured "Residential Mortgage-Backed Securities" (RMBSs), prior to those securities achieving formal ratings.
RMBSs are tradeable securities backed by mortgages.
Bollard said there has been good progress by institutions in developing RMBSs should they be needed.
"While we believe these measures are sufficient at this stage, the bank retains a number of other regulatory powers. We are committed to ensuring the ongoing health of the financial system and remain ready to respond as appropriate."
The bank is due to make a scheduled decision on interest rates on October 23 and economists are increasingly predicting the central bank may cut the rate by up to 100 basis points or a full percentage point.
"The centre of the financial crisis is in the United States and Europe and, while there will be ramifications for our economy, the next review of monetary policy is scheduled on 23 October.
"In the meantime we are staying in very close touch with the banks, and also with the government."
- NZPA
