30 Mar 2009

Call for Reserve Bank to do more to lower interest rates

6:46 am on 30 March 2009

An economic forecasting house says the Reserve Bank needs to do more to get interest rates down, or the financial position of even well-placed households could be jeopardised.

New Zealand is facing contractionary monetary conditions through a combination of a stronger currency and rising longer term interest rates, which may damage an already weakened economy.

Senior strategist at TD Securities in Sydney, Annette Beacher, says Reserve Bank Governor Alan Bollard still has work to do to revive the economy in this environment.

She says the central bank needs to suggest interest rates may have to stay lower for the foreseeable future.

Ms Beacher says the best way to change perceptions is to make more public announcements about lower cash rates for longer.

She says even relatively safe households may be in trouble as the recession drags on and unemployment sharply worsens.

Households in strong position

A Reserve Bank paper has found households are in a strong financial position to cope with the economic downturn.

Household debt rising substantially between 2001 and 2007, however the paper says 65% of households have no mortgage and of those that do, 80% have mortgages of less than $200,000.

High income earners are responsible for 70% of total household debt while debt burdens for low income households have fallen.