30 Jan 2009

Other measures suggested to fight recession

11:24 am on 30 January 2009

ASB chief economist Nick Tuffley thinks the Reserve Bank could ditch the Official Cash Rate as its principal tool for fighting the recession.

He says the bank could be forced into radical alternatives as the Official Cash Rate continues to fall and begins to lose its effectiveness.

The OCR was lowered to 3.5% on Thursday - its lowest since 1999.

The Reserve Bank has lowered the rate from 8.25% since July 2008.

Mr Tuffley says repeated cuts to the cash rate are making interest rates on deposits unattractive to savers and could potentially starve retail banks of a vital source of funds.

He says alternatives to the Official Cash Rate could include printing money to buy Government and corporate bonds, which should increase credit to businesses and reduce borrowing costs.