Saturday, December 6, 2008

A bitter blow for savers

The above cartoon appeared in yesterday's edition of the Manawatu Standard in Palmerston North, New Zealand, after Reserve Bank governor Alan Bollard slashed the official cash rate by a record 1.5 percent on Thursday.

The OCR now stands at 5 percent. But it is unlikely to stay at that level, economists say. A further cut to 4 percent is predicted for next month.

These cuts are, of course, intended to lift the economy out of recession, by making money easier to borrow. So here we have yet another example of borrowers — those who are largely responsible for the financial mess we are in today — being rewarded, while savers are penalized. And needless to say, those savers, such as elderly people, who rely on interest to supplement their meager income, are going to suffer considerable hardship.

One also has to wonder whether New Zealanders, who have never been good savers, will bother to save anything if interest rates go much lower. And if savings fall, where is the money for the borrowers going to come from? From Japan and China?

How deep into debt is New Zealand prepared to go?

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