New Zealand lowers interest rates by 100 bps

Reserve Bank of NZ has lowered its interest rates by 100 bps to 6.50%. NZ did not join the central bank coordination to cut rates.

This rate cut is however in line with the 100 bps rate cut by Australia. Previously, NZ had cut rates by 50 bps to 7.50% on 11 Sep 2008.

It seems to be rate cutting season of central banks. I however still fail to understand how such dramatic rate cutting would help? When banks don’t want to enter the markets and there is absolutely no confidence, how would lowering the interest rates help?

Another thing which I don’t understand is as follows. The usual claim of central banks is monetary policy works with a lag i.e. when inflation is high, central banks increase rates gradually and the impact on inflation is seen after some months. For advanced economies, the lag is about 6 months and for emerging economies it is about 9-12 months. If this is the case, it should apply to opposite scenario as well. If central banks are lowering rates, it should impact with the same lag. So, how will lowering interest rates impact the situation immediately? And that too in such frozen times? Why are they panicking so much?

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3 Responses to “New Zealand lowers interest rates by 100 bps”

  1. Interest Rates » New Zealand lowers interest rates by 100 bps Says:

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  2. Interest Rates » New Zealand lowers interest rates by 100 bps « Mostly Economics Says:

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  3. Monetary Policy Transmission channels and role of Central bank « Mostly Economics Says:

    […] Policy Transmission channels and role of Central bank I had earlier expressed concern over ongoing frequent and dramatic rate cuts by central banks world over (exceptions are […]

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