The Reserve Bank cut official interest rates by 0.5 percentage points to 7% at the end of July. The then governor of the Reserve Bank, Bernie Fraser, ascribed the easing of official rates to a fall in underlying inflation and sluggish growth. He also warned that the Reserve Bank stood ready to reverse the cut if wage movements became excessive. Banks responded to the cut by reducing their home-loan interest rates.
--but are unlikely to be reduced further this year
Speculation that further interest rate cuts are in prospect has been dashed by Ted Evans, the secretary to the Treasury and the second most important member of the Reserve Bank board. Mr Evans reiterated Reserve Bank concerns about the level of wages growth. His comments suggest that further cuts are likely to be delayed until there is clear evidence of an easing in the level of wage settlements.