The Reserve Bank has cut official interest rates to 2.75 per cent.

Economists almost universally expected the central bank to cut its official cash rate to 2.75 per cent, which has built on the two cuts that occurred in June and July, but what happens after the announcement is less clear.

Some home lenders have already reduced their mortgage rates in anticipation of a rate cut, in order to get a jump on their competitors.

Earlier this week the ASB Bank matched the 4.35 per cent special one-year rate the BNZ unveiled last week. It is the lowest home loan rate New Zealand has seen since the 1960s.

Business and consumer confidence surveys have also pointed to the economy slowing a little from what up until now has been a reasonably brisk pace.

ANZ Bank, in a market commentary, said the case for a cut is pretty compelling.  June short-term GDP forecasts now look too optimistic, and by association, its unemployment rate forecasts too low.  Business confidence had dropped like a stone.   In addition, the economies of New Zealand's trading partners - Australia and China - are slowing.

The Reserve Bank, whose central goal is price stability, has had little to worry about on the inflation front in recent years. The last time inflation got close to 2 per cent was in calendar 2011, when it rose by 1.8 per cent on the CPI. Very low oil prices, and up until recently a New Zealand strong dollar, have helped to put a lid on inflation. In the oil markets, benchmark West Texas Intermediate last traded at US$45 a barrel — half the price of where it was a year ago.

Source: NZHerald