Reserve Bank Governor Alan Bollard has expanded on his reasons for the bigger than expected 50 basis point cut in the Official Cash Rate to 7.5%. Bollard told Bloomberg Television in an interview the central bank wanted to give New Zealand's banks a big cut so that at least some of it was passed on to both businesses and households in the form of lower mortgage and other borrowing rates.
He said bank funding costs had increased significantly because of the global Credit Crunch, which meant a smaller cut of 25 basis points may not have been enough for banks to pass on a rate cut to borrowers.
"We're keen to see some of the cut in the Official Cash Rate reflected in lower mortgage rates," Bollard told Bloomberg Television in a phone interview.
"We wanted to frontload it a bit to get these (mortgage) rates down a bit," Bollard said. "This time it was important that the banks did have room to cut rates," he said.
Asked if the larger than expected rate cut was a signal of significant deterioration in the economic outlook, Bollard said: "No it's more related to credit conditions."
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