Reserve Bank Governor Alan Bollard has told a news conference after this morning's 50 basis point rate cut to 3% that the bank was forecasting the official cash rate to trough around 2.5% and he did not expect it to be cut below 2%. Earlier Bollard said any further rate cuts would be small and the OCR could not be cut anywhere near to zero % because New Zealand needed to remain competitive in international capital markets. Markets interpreted this as meaning the rate cutting programme from a peak of 8.25% to 3% was nearing its end. The New Zealand dollar blipped up to 51 USc on the announcement and the relatively hawkish commentary. Bollard said monetary policy ceased to be very effective once real interest rates approached zero. With inflation forecast at around 2%, this meant the Reserve Bank saw little reason to cut below 2%.
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