Low Interest Rates have benefits .... and costs

10 September 2015

Low Interest Rates have benefits .... and costs

Today’s 0.25% cut in the Official Cash Rate confirms the Auckland Chamber of Commerce’s assessment of a softening economic outlook.

“The cut in the OCR to 2.75% is therefore overall welcome. It will stimulate the economy, make borrowing easier and encourage spending and investment,” said CEO Michael Barnett.

“In our view the inflationary impact risk of continuing to cut interest rates will be offset by the still slowing global economy. But taking into account the volatile outlook for commodity prices in the period ahead, and the benefit of falling oil prices being cancelled out by a lower New Zealand dollar since April, the impact of today’s announcement on our export and import competing sectors will be an environment of continuing watchfulness.

“We shouldn’t ignore the downside impacts,” he warned. “In the short term lower interest rates will put upward pressure on house prices, particularly in Auckland.”

“This will also be bad news for depositors and those trying to live off savings and higher interest rates,” he noted

On balance, Mr Barnett supported indications that the banking sector will quickly pass on the reduced OCR with lower interest rates to customers.

ENDS

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