The Reserve Bank has this morning slashed interest rates by 0.5%.
This is good news for mortgage-owners as the major banks have dropped their floating rates by the same amount. It is less good news for drivers as this will continue the slide of the kiwi dollar, and the ever-rising oil prices will rise even faster in New Zealand dollar terms. Expect to hit record petrol prices within a couple of weeks.
Bernard Hickey worries the cut will lock in inflation, with it already forecast to shortly rise over 5%. Briscoes were already suggesting a lean year for importing retailers as people don’t buy and the rise in dollar cuts margins.
The Reserve Bank felt compelled to make the cut as the earthquake will mean that the likely 2 quarters of recession (last half of 2010, cause: National’s policies) will become a definite 3 quarters of recession as the earthquake wipes out any chance of improvement in the first part of this year. And it’s also good news for our farmers with record commodity prices combining well with a weaker dollar meaning they get more NZ$ for their output. Indeed a weaker dollar is generally better for the economy as it helps our exporters and discourages us from buying foreign goods – that’s why China keeps the yuan artificially low.
Away from that, with Auckland suffering a housing shortage, 15,000 families awaiting a Housing NZ home, and now 10,000 homes in Christchurch destroyed and needing replacing, Sovereign Homes has gone into liquidation due to a lack of new building. Formerly employed skilled tradesmen are joining the exodus overseas. Like a number of firms, Sovereign struggled through 2008 & 2009, only to be taken out by National’s double-dip recession. Economists expect more firms to follow suit.