Today's cut means governor Alan Bollard has slashed the official cash rate by an emphatic 4 percentage points in just three months.
Such bold steps leave you wondering whether to be relieved that they have been taken or alarmed that they are necessary. Both reactions are appropriate.
The
150 basis point cut, to an historic low of 3.5 per cent for the benchmark rate, was at the high end of market expectations, and Dr Bollard last left open the door for more, albeit smaller, cuts to come.
Further cuts will depend on how the international environment plays out and how the new Zealand economy responds to the large doses of stimulus already administered.
They include a cumulative 475 basis points of OCR cuts since last July, fiscal stimulus worth 5 per cent of GDP over the current and coming fiscal years, and a sharp drop in the exchange rate.
But as Dr Bollard said this morning, you can have stimulatory conditions without stimulation. The risk is that those households and businesses which are in a position to spend keep their cheque books shut and that banks are over-cautious with their lending.
The Reserve Bank's statement today urged both groups to do their bit for the recovery.
But faced with the weakest world economic conditions since World War II, mounting job losses, falling house prices and evaporating retirement savings, such admonitions are liable to fall on deaf ears.
