A short month with many people visitng my office to try to sort out their immigration issues and or status. In the majority of cases we were successful despite the upcoming festive season, meaning that case officers may not have been able to respond as normal to our queries. That is to be expected , that is normal and once explained the clients do accept that.

What else happened?

• The Reserve Bank delivered on the widespread anticipation of a major cut in the Official Cash Rate (OCR) by reducing it one and a half percentage points, from 6.5% to 5%.
• Although the size of the cut was unprecedented, it was in line with our Economists’ expectations. The Reserve Bank said key factors in the decision were the ongoing turmoil in financial markets, the marked deterioration in the global growth outlook, and the negative flow-on effects of this on the New Zealand economy.
• Since July, the OCR has fallen by 3.25%. The Reserve Bank expects this lowering of interest rates, along with a depreciating New Zealand dollar and fiscal stimulus from the government, to help support the economy and create the conditions for a rebound in growth.
• The Reserve Bank said they still had concerns over domestic inflation, citing electricity prices and local body rates in particular. However, they expected that weaker growth and falling petrol prices will help inflation return comfortably to within their target range of 1% – 3%.

• The Reserve Bank said further reductions in the OCR would depend on what happens in the global and domestic economies.
• However, our Economists expect further reductions, with the OCR ultimately likely to fall below 4%.
• Future cuts are unlikely to be on the same scale as todays. The most likely scenario is a series of 0.5% cuts, though a larger move still cannot be ruled out.
• The Reserve Bank said they expected financial institutions to pass on the reductions in wholesale interest rates to their customers.

How does the OCR affect home loan interest rates?

The OCR is set every six weeks by the Governor of the Reserve Bank. The Governor sets this rate to manage inflation, based on what’s happening in the economy. The OCR is one of many indicators, including overseas interest rates and wider economic developments, that affect short term interest rates such as floating rates and one and two year fixed lending rates.

Wishing you all a Merry and Blessed Christmas and a Safe, Happy and Prosperous New Year. See you in 2009!!!

Contribution from the National Bank of New Zealand