NZ dollar dips after Bollard slashes rate

Photo / Martin Sykes

The New Zealand dollar fell after the Reserve Bank slashed the official cash rate to 2.5 per cent to underpin an economy reeling from the impact of the Christchurch earthquake.

The kiwi fell as low as 73.54 US cents from 73.94 cents immediately before the Monetary Policy Statement was released and recently traded at 73.61 cents.

Governor Alan Bollard cut the official cash rate 50 basis points to 2.5 per cent, matching its record low of April 2009.

The market was broadly split on whether the bank would cut rates by 25 or 50 basis points in response to the 6.3 magnitude earthquake, which killed at least 166 people and wreaked some $15 billion worth of damage.

About $9 billion of the cost is assumed to be on residential property, with commercial property and public infrastructure assets costing $3 billion each.

"It was a preemptive move on the expectation that economic activity would be very weak in the first half, and they added policy support to ensure economic activity doesn't deteriorate too markedly," said Khoon Goh, head of market economics & strategy at ANZ New Zealand.

"The key point is that this is a short-term insurance measure, a move they are prepared to take it back when rebuilding starts."

Goh said the 50-basis-point cut caught some in the market by surprise, which was why the kiwi slipped so markedly, but that the currency level should find strong support now that it's clear the Reserve Bank will not be cutting rates any further.