RBNZ cuts OCR to 3%, says further NZD depreciation is needed

New Zealand interest rates were cut for the second time in as many months on Thursday, as sharp falls in dairy prices and waning building activity in earthquake-struck Canterbury has eroded the economic outlook, while the recent weakening in the New Zealand dollar is expected to support growth going forward.

The Official Cash Rate (OCR) was lowered from 3.25% to 3.0% on Thursday, and the central bank explicitly stated that further rate cuts were likely. On Thursday Wheeler admitted that the growth outlook had weakened since the bank released GDP forecasts on June 11, largely due to the impact of weaker dairy prices and the slowdown of construction activity in Christchurch.

The New Zealand dollar rose sharply against the greenback on Thursday after the Reserve Bank of New Zealand signalled that its comfort level for the currency was a great deal closer than where it was just a few months ago.