Tomorrow's interest rate cut welcomed

Media release

Newmarket Business Association

Wednesday, 28 January 2009

Tomorrow's interest rate cut welcomed but sadly its impact will be weakened

An Auckland business group says any slashing to the Official Cash Rate by the Reserve Bank tomorrow will be hugely welcomed but sadly a lot of potential benefit will be largely cancelled out due to rising costs. What's more it will take time for the clear majority of householders to feel any benefit from the interest rate cuts.

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," says Cameron Brewer, head of the Newmarket Business Association.

"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 falling milk payout being the best example.

"What's more these latest interest rate cuts 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.

"Again, we welcome these imminent interest rate cuts. They will send out a positive message just as the tax cuts will in April. It all helps to protect people's spending power from eroding too much but sadly it won't be a big and immediate boost for most," says Mr Brewer.

ENDS

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