Government urged to invest in infrastructure after Reserve Bank slashes OCR

By Hamish Cardwell of

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Retail banks have already started cutting interest rates on home loans after the surprise move from the Reserve Bank today. Source: 1 NEWS

With the cost of borrowing at an all-time low, the government's been told to seize the moment and invest in New Zealand's ailing infrastructure.

The Reserve Bank yesterday slashed the official cash rate to a record low of 1 percent, citing low business and consumer confidence and slowing global trade.

The half a percentage point reduction was the biggest single move by the central bank since it slashed rates in the wake of the 2011 Christchurch earthquake.

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New Zealand’s central bank has knocked 0.5 per cent from the previous rate of 1.5 per cent. Source: 1 NEWS

Infrastructure New Zealand chief executive Stephen Selwood said the country's roads and water pipes were in a dire state and something needed to be done.

"All of the economic indicators are looking a bit sad at the moment so it's time for stimulus to the economy.

"It should be a clear signal to investors and to government that the time is right to borrow and invest in infrastructure which will provide ... a kickstart to a long-term catchup on the infrastructure crisis."

He said there would be consequences if the chance was squandered.

"I think the opportunity cost of failure to invest is [already] affecting us on a daily basis. We're seeing congestion in our growing cities, we're seeing water contamination infecting our drinking water systems.

"We've got major risks on climate change threats looking into the future - now's the opportunity to be addressing all of those issues."

Impact on elderly

Grey Power's National President Mac Welch said the cut would have a huge impact on the elderly - some losing nearly 10 per cent of their income.

He said people on fixed incomes had to budget carefully and they would have to make sacrifices to get by.

Some might decide they would have to go without heat during the winter, he said.

Good news for some

But the low cost of borrowing could be good news for those wanting to get onto the property ladder.

Developer Matthew Horncastle from Williams Corporation said he expected to see an increase in the number of first home buyers.

But he said it would also be a boon for mum-and-dad property investors.

"The main thing that's happened, that I think is going to be really big for the property industry, is just the margin difference between rental income and getting your mortgage.

"So let's say by the end of the year you can get a mortgage at 3 percent and without working very hard you can go find a property with a 6 percent rent return.

"That's going to make that investment property extremely attractive."

Cut again

Infometrics economist Gareth Kiernan said he thinks the Reserve Bank will cut rates again before the end of the year.

But he said he was concerned that if there was an international shock to New Zealand's economy, the Reserve Bank would not have any levers left to pull.

"The biggest problem we have at the moment is that there's not a lot of ammunition left in the tank if something goes really wrong overseas."

"Particularly in terms of that US-China trade situation."