Prime Minister John Key: Brexit won't lead to OCR cut

Prime Minister John Key speaks to media on the Brexit episode at Skycity. Photo / Nick Reed

The Reserve Bank is unlikely to cut the official cash rate in response to the turmoil caused by British voters' decision to leave the European Union, Prime Minister John Key says.

Interest rates could stay lower for longer as the global economy and financial markets absorb the impact of the Brexit shock.

Some business commentators have said the Reserve Bank could in August cut the official cash rate below 2 per cent from 2.25 per cent.

Lower rates could pour fire on an already heated property market.

This morning, Mr Key said he didn't think the Brexit vote would lead to an OCR cut.

"I don't think so in the short-term, primarily because what he [Reserve Bank governor Graeme Wheeler] is looking at is the strength of the New Zealand economy," he told Radio New Zealand.

"And if you look at his last monetary policy statement, he effectively had growth in New Zealand at a slightly stronger rate than the Treasury - north of 3 per cent.

"I think he will obviously look at the world markets, one could argue he has room to move if he needed to...but I don't think, of itself, it will make him cut."

Mr Key said New Zealand would need to forge a new free trade agreement with Britain.

However, that process could be complicated by political turmoil in Britain. Some politicians in Scotland are once again pressing the case for secession.

"You can already see the comments that [Scotland's First Minister] Nicola Sturgeon is making in Scotland. If Scotland was to go, what does that all mean," Mr Key told Radio New Zealand.

"It is so raw at the moment I wouldn't want to predict or overly comment on it. But you can just see the discussion that's happening at the moment. There will be a really strong feeling among some places - certainly Scotland - that wanted to stay [in the EU]."