Credit Herald

New Zealand's central bank will cut its benchmark interest rate by half a percentage point to 7 percent next month to counter the credit crisis, according to economists from Westpac Banking Corp. UBS AG and TD Securities.

“The dramatic events in financial markets and likely consequences for the New Zealand economy have seen us change our call,'' Westpac said in a weekly report e-mailed to Bloomberg News. “Current developments will only serve to accelerate the Reserve Bank's easing plans.''

Reserve Bank Governor Alan Bollard cut the official cash rate by a half point to 7.5 percent on Sept. 11, more than most economists expected. Bollard said the outlook for the global economy had deteriorated and he urged banks to pass on lower borrowing costs to consumers and businesses.

Since then, Lehman Brothers Holdings Inc. has collapsed and the credit crisis has deepened, prompting the U.S. Treasury to propose a $700 billion plan to buy troubles assets and avert a financial meltdown.

“The new chapter of the credit crisis, combined with high funding costs and the recession, support another half-point cut in October,'' Joshua Williamson, economist at TD Securities in Sydney, said in an e-mailed statement cheap payday loans.

Eight of 14 economists surveyed by Bloomberg expect a half- point cut. The rest expect a quarter-point reduction.

Recession

New Zealand's economy was probably in its first recession since 1998 in the first half of 2008, according to all 13 economists polled by Bloomberg. The government publishes second- quarter figures for gross domestic product on Sept. 26.

Finance Minister Michael Cullen last week said the turmoil in the U.S. financial market will slow the global economy, which may hinder New Zealand's economic recovery.

“Increased downside risks for growth could be used to justify more aggressive easing,'' said Robin Clements, chief New Zealand economist at UBS in Christchurch.

He revised his forecast to a half-point cut when Bollard next reviews the rate on Oct. 23.

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