OCR cut great but 85% will see no initial benefit

Media release

Newmarket Business Association

Thursday, 29 January 2009

OCR cut great but 85% will see no immediate benefit

The Reserve Bank's historic cut to the Official Cash Rate is welcome news but it will take time for the overwhelming majority of householders to feel any real benefit, according to an Auckland business lobby group.

This morning Reserve Bank Governor Alan Bollard announced a 150 basis point cut. This cut takes the OCR down to a record 3.5 percent.

"This latest cut, as big as it is, will take time to have an impact simply because about 85% of New Zealand mortgages are fixed rate mortgages. So the overwhelming majority of householders won't benefit until they get the first chance to renew their mortgages which could be months if not years away. In fact some with long-term fixed mortgages may never see any benefit from today as rates may again be up by the time they renew," says Cameron Brewer, head of the Newmarket Business Association.

"What's more for both business and the consumer sadly a lot of potential benefit will be cancelled out due to rising costs.

The Newmarket Business Association points to escalating costs due to the falling dollar.

"Let's not forget that the New Zealand dollar was buying 81US cents in March last year whereas now it's struggling to buy 53US cents. That's eroding the profit margins of the likes of as retailers as well as keeping the cost of consumer goods up. We're already seeing the price of petrol on the rise again.

"So we've got a situation of our importers hurting thanks to the weak dollar but also our exporters aren't benefiting due to falling commodity prices - Fonterra's lower milk payout being the best example.

"This record cut to OCR sends out a decisive message and is positive overall. However for most people it won't provide a big and immediate boost to the back pocket," says Mr Brewer.

ENDS

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