28 Feb 2011

Reserve Bank urged to cut rates

1:45 pm on 28 February 2011

ASB chief economist Nick Tuffley is urging the Reserve Bank to cut the cost of borrowing to boost flagging confidence in the fragile economy in the wake of the Christchurch earthquake.

Mr Tuffley, says the official cash rate should be cut from 3% to 2.5% - the level it was at last June.

He says the economy was already looking subdued before the earthquake and the risk to the wider economy has grown.

Mr Tuffley says there's not a lot to lose by cutting rates, as the move can be reversed if the economy strengthens.

Other economists say cutting interest rates would be a kneejerk reaction to the earthquake.

They argue the pressure on inflation, and the risk of causing a major fall in the New Zealand dollar are reasons why the Reserve Bank should hold the rate at its next meeting in March.