New Zealand: Recession Over?

The Reserve Bank of New Zealand cut interest rates by 150bp this afternoon to 5 percent. This is the largest interest rate cut for the central bank and brings their total easing since July to 325bp.

Although the degree of the rate cut was not that big of a surprise, the  comments from RBNZ Governor Bollard were very interesting. Even though he said that further rate cuts may be warranted, he also indicated that recession in New Zealand may already be over,.  This is the reason why the New Zealand dollar rallied after the large rate cut.

The economy is still expected to contract until June but at least for New Zealand a bottom is near. We can only hope the same for the US.  The 30 percent decline in the currency year to date is one of the primary reasons why the New Zealand economy will be able to recover quickly.

The combination of a weak currency and another 100bp of expected rate cuts will help to support the economy.

Think about what a strong dollar does to the US economy.

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