Reserve Bank urged to be bold with OCR cut

Reserve Bank urged to be bold with OCR cut

If the Reserve Bank wants to boost inflation it needs to be bold and take 50 basis points off the official cash rate (OCR), says one expert.

It's widely expected Governor Graeme Wheeler will knock 25 points off the OCR on Thursday morning, with banks already factoring the drop into their offerings.

Financial advisor Martin Hawes told Paul Henry the 25-point drop is so inevitable, doing what everyone expects won't have much effect at all.

"He needs to get the exchange rate to kick a bit of inflation into the system - that's why I think he might go 50 basis points, a sort of shock-and-awe, a real statement to say this is what we are going to do."

The OCR is currently 2.25 percent. If it goes down 50 points - 0.5 percent - it'll be at a record low. This makes it cheaper to borrow money, with critics saying it'll only fuel the Auckland property bubble and putting houses further out of reach for ordinary Kiwis.

Mr Hawes doesn't think further reductions in the OCR will make the situation worse, however, with prices so high interest rates are no longer buyers' biggest concern.

"The limiting factor for people buying houses now is scraping the deposit together, rather than the interest rates."

If it does drop 25 points, he says to only expect only a small improvement on your mortgage rates, if any. If it comes down 50, Mr Hawes predicts we'll start seeing the banks offer fixed rates below 4 percent.

The OCR announcement is at 9am.

Newshub.

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