Thursday, July 24, 2008

Reserve Bank cuts rates, but I'm not rejoicing

It wasn't the news I wanted to hear: The Reserve Bank today lowered New Zealand's official interest rates from 8.25 percent to 8 percent.

As far as I am concerned, as a greedy oldie, the official rates can never be too high, as high official rates invariably result in high interest rates on my term deposits.

The reduction by the Reserve Bank - the first cut in official rates in exactly five years - could have been greater, in view of inflation figures released last week. These showed that annual inflation had climbed to 4 percent.

Economists now believe it is likely to hit 5.5 percent later this year - a level that is well above Reserve Bank governor Alan Bollard's 1 percent to 3 percent target band.

Working in favour of people like myself are the very high rates of interest that banks are having to pay offshore, where they source about 25 percent of their funds, because of the global credit crisis.

So for the time being, at least, my income from my long-term deposits will probably remain reasonably high.


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