Co-operative Bank reacts first to OCR cut, slashing floating mortgage rate

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The first bank to respond to the Official Cash Rate slash today says the move came as a surprise, not because of the cut but because of the timing. 

The Reserve Bank slashed the OCR by 25 basis points to a new record low of 2.25 percent.

While other banks are still pondering the move, The Co-operative has dropped its floating mortgage rate from 5.7 to 5.45 per cent.

New Zealand Currency

New Zealand currency

Source: 1 NEWS

Chief Executive, Bruce McLachlan, says the surprise cut was deliberate.

"The economy is quite buyout at the moment not withstanding dairy issues, the household and business sector is quite confident and we’re seeing lots of areas to illustrate the NZ economy is going to escalate that," he said.

Mr McLachlan says the drop will further fuel the housing market driving house prices up further.

He says the real thing to watch is whether the full 25 points drop is passed on by other banks too.

Kiwibank says it is still looking into the move but will respond later in the day.

Challenges facing dairy sector

The Reserve Bank said in its statement that "further policy easing may be required to ensure that future average inflation settles near the middle of the target range".

In making its decision, Reserve Bank Governor warned the outlook for global growth had deteriorated since December, with an increase in financial market volatility.

Graeme Wheeler also noted the challenges facing the dairy sector and the fact that the New Zealand dollar was trading 4 percent higher (across a basket of currencies) that projected in December.

Mr Wheeler wasn't all doom and gloom and noted that domestic growth is expected to be supported by strong inward migration, tourism, a pipeline of construction activity and accommodative monetary policy.

However, he says while long run inflation expectations are well anchored at 2 percent there has been a material decline in a range of inflation expectation measures.

Inflation in New Zealand is currently sitting at just 0.1 percent. The Reserve Bank is tasked with keeping inflation between 1 and 3 percent. 

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