A big 0.5% OCR cut

The Herald reports:

The Reserve Bank has cut the Official Cash Rate by 50 basis points to 2.5%.

The bank delivered its latest Monetary Policy Review at 2pm today.

The Monetary Policy Committee reached a consensus to reduce the Official Cash Rate (OCR) by 50 basis points (bps).

The committee said it remained open to further reductions in the OCR as required for inflation to settle sustainably near the 2% target mid-point in the medium term.

This is welcome news for home owners and others. I was a bit surprised they did a 0.5% cut as inflation is still close to the top of the target range of 1% to 3%, but the fact it was a consensus decision seems to indicate they don’t think it will be inflationary.

The committee revised its assessment of spare capacity in the economy following the worse than expected second-quarter GDP results, but only marginally.

An unusually large seasonal balancing item had contributed to the weakness in the headline figure and was likely to be reversed out in the third quarter, it said.

A good third quarter result will be needed for business and consumer confidence.