Welcome to the September 11 2008 editions of the BNZ Weekly Overview and Offshore Overview.
The big news for the New Zealand economy this week was the Reserve Bank's larger than expected 0.5% cut in the official cash rate this morning. It appears they were motivated to cut this amount rather than the expected 0.25% by concerns bank lending rates may not go down all that much because of the global credit crisis. Such concerns are warranted especially as even after the bailout in the United States of their two large mortgage purchasing agencies there remains zero sign the global credit crisis is improving let alone approaching an end.
Internationally conditions continue to deteriorate in the United Kingdom and Europe whereas in the United States indicators are generally mixed but with more weakness expected in the near future. In Australia business sentiment remains extremely low but is not falling any further. However consumer confidence has improved slightly and the labour market remains surprisingly robust.
For New Zealand going forward we don't believe the easing of monetary policy today will spur the economy in the short term. But it is good news for exporters as the currency has fallen to almost below 65.0 US cents and it suggests light at the end of the tunnel for the housing market - though further weakness will come before strength appears some time late next year.