Liam Dann: Good news in Reserve Bank gloom as mortgage rates fall and shares soar

COMMENT:

The Reserve Bank's darker tone today is clearly worrying but - in the short term at least - it is likely to be good news for KiwiSavers, mortgage holders and exporters.

KiwiBank has already said it will cut its five year fixed rate by 80 basis points to 4.29 per cent from Monday - a move likely to spark a reaction from competitors.

After the Reserve Bank indicated its next interest rate move is more likely to be a cut than a rise the dollar plunged and the sharemarket rose.

The dollar fell almost one cent to just above US68c. The share market is up more than one per cent. In fact the NZX-50 is now up 10 per cent for the year to date.

The Reserve Bank has effectively joined its counterparts in Australia and the US in shifting gear as fears of a global economic slowdown grow.

We shouldn't pretend the retreat by central banks this year is a something to cheer.

It reflects an inability to get monetary policy back to what we used to assume were normal settings.

But the trend does mean mortgage rates are likely to stay lower longer - good news for heavily indebted home and business owners.

It means local KiwiSaver funds are looking at stronger returns this quarter as money flows back into equity markets.

And it means a lower kiwi dollar, which should further improve returns for exporters - our great hope for a longer term economic boost.

There is a broader debate to be had about the merits of holding rates artificially low.

Ten years on from the global financial crisis we remain stuck in a cycle of low inflation and low growth with interest rates perpetually set to keep the asset-holding middle-class in spending mode.

There is a risk that we stimulate our way into the financial crisis that won't be lost on Reserve Bank Governor Adrian Orr.

But the big call was made when the US Federal Reserve shifted put rate rises on hold late last year.

With Australia following suit and New Zealand's domestic economy facing headwinds on issues like business confidence this call was probably inevitable sooner or later.

Governor Orr has made a point of promising clear signals from the Reserve Bank under his watch and has done so here.

He certainly got the reaction he was looking for.