Bollard urges Kiwis to hang tough

Friday 30th January 2009

Reserve Bank of New Zealand Governor Alan Bollard urged households and businesses to ride out the economic and financial slump without capitulating, saying he has room to cut interest rates further if needed.

"Households and firms should not pull down the shutters, and banks should continue to lend on sound business propositions," Bollard said in a speech today titled "Coping with global financial and economic stresses."

The address to the Canterbury Employers' Chamber of Commerce comes a day after Bollard cut the official cash rate to a record low 3.5% and held up the prospect of further rate cuts as the nation weathers the global economic slump. Unlike the U.S. and Japan, whose central banks have already slashed their benchmark rates close to zero, New Zealand still has room to lower the OCR, Bollard said today.

"Lest there be any doubt, the tool box is by no means empty," he said. "We have done a lot already and it will take some time for these actions to have their full effects, but we are entering the year well-positioned on the monetary policy, liquidity management and prudential policy fronts," he said.

"If we need to, there is still room to cut the OCR further in response to adverse economic developments," he said.

The New Zealand dollar dropped below 51 U.S. cents after the speech, reaching a new six-year low of 50.78 cents. The currency has tumbled as interest rates fell, the economy sank deeper into recession and global markets faltered.

The economy has officially contracted for three straight quarters and economists expect little improvement through the first half of this year as job losses mount, corporate profits weaken and household wealth slips.

Economists expect the unemployment rate will rise to more than 7% by 2010. Figures today showed home-building approvals fell to a record low last month in a sign that sliding borrowing costs haven't yet revived demand in an economy buffeted by its first recession in a decade.

Building approvals fell 6% in December, seasonally adjusted, to 1,113, after a revised 4% gain in November, according to Statistics New Zealand.

By Jonathan Underhill

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