The Reserve Bank of New Zealand decided to reduce its interest rate by 50 basis points today according to a government release. The rate reduction brought the official cash rate from 3.50 percent to a new record low 3.00 percent. Today’s bank decision follows previous reductions by 150 basis points in each of 
December and January as the RBZN has slashed rates by 525 basis points since the middle of last year in response to the global economic crisis.
New Zealand’s economy activity has been hit hard with contracting economic growth since the beginning of 2008. The NZ gross domestic product declined by 0.3 percent in the first quarter of 2008, 0.2 percent in the second quarter and by 0.4 percent in the third quarter.
The RBNZ cash rate is now at its lowest standing since the bank adopted its official cash rate policy in 1999. New Zealand’s rate is also lower than Australia’s 3.25 percent cash rate following today’s news and Australia’s decision to hold its rate steady last week.
Reserve Bank Governor Alan Bollard commented in the release on the New Zealand saying, “the impact of difficult trading conditions is showing through clearly in reduced export revenues, weak business sentiment, and sharply curtailed investment and employment. Further house price falls and increased precautionary saving by households are driving a weakness in spending. Inflation pressure is abating rapidly as a result.”
Bollard said that the global economy “deteriorated very rapidly late last year” and that “While monetary and fiscal policy responses in many countries have been substantial we still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009. The timing and extent of global recovery remain highly uncertain.”
Bollard also stated that more rate cuts to come should be smaller than the last few reductions but he does not see New Zealand adopting a zero interest rate policy because, “New Zealand needs to retain competitiveness in the international capital markets.” You can read the full bank statement here.
New Zealand kiwi dollar ascends higher in Forex Trading.
The New Zealand dollar gained in Forex Trading after the interest rate news was released. The NZ kiwi spiked higher against the US dollar as the NZD/USD trades at 0.5127 at 5:25m EST after opening the day at the 0.5000 exchange rate. The Australian dollar lost ground to the New Zealand kiwi as the AUD/NZD has fallen all the way down to trading at 1.2685 after opening the day at 1.2855.
The euro also fell substantially versus the kiwi as the EUR/NZD trades at 2.5037 from the 2.5334 opening today. Against the Japanese yen, the kiwi climbed from its 49.28 opening to trading later at 49.80 yen per kiwi.
NZD/USD Chart – The New Zealand dollar spiking higher versus the US dollar after the RBNZ cut interest rates by 50 basis points to 3.00 percent.
