KEY POINTS:
Alan Bollard gave us five - a low five - this morning.
Although it's difficult to get too excited about this 'historical' biggest ever 1.5 per cent cut in the Official Cash Rate (OCR).
For one thing, the drop to a 5 per cent OCR was not a surprise (interest rate announcements rarely are). Bank economists, whose only real job is to speculate on interest rate movements, had already factored in the cut - while the commercial minds figure out how much of the cut the banks can keep themselves without alienating customers.
The other reason why people are not dancing in the streets to celebrate a 5 per cent OCR is because they know it smacks of desperation.
Ross Gittins, writing in the Sydney Morning Herald about similar OCR antics in Australia (where the rate dropped only 1 per cent this week, although it now sits 75 basis points below the NZ level), put it like this:
"It's as though the authorities are helping us stock up with candles and tinned food while the hurricane is still out at sea.
"There are more goodies to come next year, but the supplies are already running low. That means we can look forward to many months of bad times without all that many more good things to relieve the gloom."
According to Gittins, the unprecedented government and central bank action is an attempt to minimise the effects of a recession rather than to avoid it.
"We'll see how far they get. I doubt if they would be preparing so unstintingly if they didn't hold private fears it's going to get pretty bad," he wrote.
By UK, US and Japanese standards, however, Australasian interest rates are still high. A story in the UK Daily Telegraph, for example, picked UK rates to drop to zero - also known as free money.
There's still a way to go from five to free but anybody depending on bank deposits for income would feel very little comfort from that fact
David Chaplin
Photo: Mark Mitchell
