In the turbulent and tumultuous times we live in, it is impossible to find a single reason why market interest rates would go up - anywhere.

Commodity and energy prices are now tumbling and coupled with plunging consumer demand around the world, deflation is the bigger threat. Ben Bernanke in the US is streets ahead of the other central banks in understanding this.

Provided the banking credit blockages can be freed up, sharply lower interest rates everywhere, except the US (who already have very low rates), should prevent the global economic slowdown being too severe.

Economic conditions in the US, Europe and Japan were already weakening before this latest meltdown in recent weeks prompted by the Lehman Bros collapse. Central banks everywhere have been pumping additional liquidity into their banking systems to ensure markets still function to some degree.

The RBNZ must be seriously looking at additional liquidity measures here to bring the 90-day bank bill rate (currently 8.07%) more in line with a 7.50% OCR. They have already widened the list of securities they will accept in the repo market, but more is needed. A problem for the local market is that liquidity in the inter-bank swaps market has dried-up with overseas investment banks and bank proprietary trading desks no longer as active as they used to be.

With Eurokiwi and Uridashi investors also now long gone form the market, the poor liquidity can be expected to cause sharp shifts in the rates for no rhyme or reasons. The direction of those shifts can only be down. The fact that the Mum and Dad retail investors rushed the Kiwibank subordinated offering tells you something. Auckland Airport should also receive strong investor demand for their 8-year bond issue announced last Friday.

The CPI for the September quarter on Tuesday, October 21 will be the next pointer for the market, followed by the OCR review two days later. The quarterly CPI increase is looking more like +0.7%, well below the official RBNZ forecast of +1.3%. Subsequent quarters may well be negative given the speed of current decreases in commodity prices.

Unfortunately our local energy industry is a long way removed from global developments. Electricity prices to households have gone up 50% over the last 5 years as the Labour Government's misguided energy policy has halted the building of new coal and gas-fired electricity generating plants. Kiwi households are paying a big price for Helen's concessions to the Green Party - all about staying in power!

Outside of food and petrol prices, most of the inflation we have relates back to Government policies and public sector excesses. A change of Government should help to rein-in these troublesome additional sources of inflation. Apart from electricity prises, the future inflation picture has changed dramatically in recent months.

In response, the RBNZ must not delay cutting interest rates further.

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*Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com