Today the Governor of the Reserve Bank, Dr Alan Bollard, lowered the official cash rate (OCR) to 2.5%. This is down 50 points from the 12th March. It is also a huge change from July last year when the OCR was at a high point of 8.25%. In July 2007, the OCR was at 8.25% and it stayed there for a year. Since July last year, however, the Governor of the Reserve Bank has been steadily dropping the rate, hoping this would help the economy. He suggested it could drop again before the end of this year and would stay low until the end of 2010.

He said today that the world economy was in a much worse position than before, although New Zealand’s economy is not so bad. Still, we are affected by the rest of the world because we are a trading country. Our banks also borrow money from overseas and have to pay a high rate to borrow. This is one reason that the banks are not dropping their mortgage rates by much.

New Zealanders are not investing money at the moment either. Unemployment is also rising so it will probably be some time before the economy improves.