New Zealand borrowers were rewarded a 0.25 per cent cut to the official cash rate yesterday – the first reduction in five years.
While the Reserve Bank of New Zealand (RBNZ) expected inflation to hit five per cent in the September quarter it noted that economic activity had slowed significantly and was likely to continue to do so.
“Economic activity is likely to remain weak over the remainder of 2008. The ongoing correction in the housing market, together with the very high oil prices, will limit household spending and constrain the extent of recovery,” Alan Bollard, RBNZ governor, said.
Provided that the outlook for inflation continued to improve and there was no excessive exchange rate depreciation, Mr Bollard said the bank would expect to lower the official cash rate further in time.
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