The Reserve Bank has cut the official cash rate (OCR) this month by 0.25% to a record low of 1.5% to put this in perspective in 2008 the OCR was as high as 8.25%.
The immediate benefits have been, a falling NZ dollar against the U.S. Dollar which is really good for exporters. The OCR is one of the many factors that control the exchange rate, a lower OCR results in a lower exchange rate which has been seen this month.
The other benefit is cheaper lending because the banks have reacted immediately and we are seeing lower interest rates for lending, great if you are wanting to borrow or want to re-negotiate your current loans.
What’s the down side?
New Zealand Businesses rely heavily on imports such as fuel and machinery. Anything you purchase in your business, that is imported, is likely to go up solely because of the drop in the exchange rate. The flow on effect is increased overheads and maybe your direct costs as well.
Another downside from the drop in the OCR is the interest received from the banks will decrease resulting in lower returns in your investments.
What we recommend & things to be aware of:
