New Zealand cuts rates to 5.75%

WELLINGTON, New Zealand (CNN) -- New Zealand's central bank cut its official cash rate by a quarter of a percentage point to 5.75 percent Wednesday.

The Reserve Bank of New Zealand action came in the wake of a half a percentage point cut overnight by the U.S. Federal Reserve.

But at 4 percent, the U.S. federal funds rate is considerably lower than its New Zealand counterpart rate.

The benchmark interest rate in Australia, New Zealand's closest economic ally, is 5 percent.

RBNZ governor Don Brash said the bank's action reflected the "balance of tensions between contradictory influences" on the future direction of inflation in New Zealand.

Fall in domestic business confidence

He said the economies of many of New Zealand's biggest trading partners -- particularly Australia, the U.S., Japan and non-Japan Asia -- had grown quite slowly in recent months.

He said that while domestic business confidence had fallen, there was an expectation that the dip in the international economy would be reversed in 2002.

As well, world prices for some of New Zealand's major commodity exports had been particularly strong. The low exchange rate was also providing "useful insulation" against the slowing world economy.

The RBNZ has now cut rates three times this year, from an opening rate of 6.5 percent. Wednesday's quarter of a percentage point cut follows similar cuts on March 14 and April 19.

Reserve Bank of New Zealand

Note: Pages will open in a new browser window

External sites are not endorsed by CNN Interactive.