OCR reduced to 5.0 percent

The Reserve Bank today reduced the Official Cash Rate (OCR) from 6.5
percent to 5.0 percent.

Reserve Bank Governor Alan Bollard commented that "ongoing financial
market turmoil and the marked deterioration in the outlook for global
growth have played a large role in shaping today's decision. Activity
in most of our trading partners is now expected to contract or grow only
very slowly over the next few quarters.

"Economic activity in New Zealand will be further constrained as a
result, compared with our view in October.

"Inflation is abating here and overseas as a consequence of these
developments. We now have more confidence that annual inflation will
return comfortably inside the target band of 1 to 3 percent some time in
the first half of 2009 and remain there over the medium term. However,
we still have concerns that domestically generated inflation
(particularly local body rates and electricity prices) is remaining
stubbornly high.

"Today's decision brings the cumulative reduction in the OCR since July
to 3.25 percent, and takes monetary policy to an expansionary position.
Given recent developments in the global economy, the balance of risks to
activity and inflation are to the downside. Thus it is appropriate to
deliver this reduction quickly to support the economy and keep inflation
from falling below the target band.

"Monetary policy is working together with the depreciation of the New
Zealand dollar and the fiscal stimulus now in train, to provide
substantial support to demand over the period ahead and to create the
conditions for some rebound in growth as global conditions improve.
"To ensure the response we are seeking, we expect financial institutions
to play their part in the economic adjustment process by passing on
lower wholesale interest rates to their customers.

"Further movements in the OCR will be assessed against emerging
developments in the global and domestic economies and the response to
policy changes already in place."