Economies: NZ reverses fortunes with dramatic interest rates cut

The Reserve Bank of New Zealand has had the same governor, Dr Alan Bollard, since September 2002. In the 1990s, he developed Oikonomos a computer simulation game where students take the roles of a newly appointed finance minister in one of Agriland, Industriland and Forsakenland. The website for the original distributor, BrighterPaths.Com has not been active since 2001.We were unable to find details of the current supplier.

During his tenure, New Zealand had the reputation of being the country that would give you most for your money - except, perhaps, Iceland. Its proximity to Japan - which had for much of that time interest rates hovering at or around zero, made borrowing money in Japan and depositing it in New Zealand a very appealing prospect.

But in recent weeks, there has been a massive reversal of that policy and yesterday interest rates were redued by another one percent to 6.3%. Interest rates for borrowers are expected to fall to under 9% for variable rates and to under 8% for rates fixed for a year, indicating that banks expect a further fall but not much. Some commentators, however, are suggesting that rates of as low as 4.5% are on the horizon.

The NZ dollar has started to fall against the USA as interest rates have come off their highest figures.

A report by the OECD shows that across the developed world there is a trend towards widening the gap between rich and poor. But the report singled out New Zealand for special comment.

In 1999, Statistics New Zealand produced figures showing that the wealthiest 10% of households gained in after tax income by 25% between 1982 and 1996 to take 25% of total income at the expense of middle income earners who saw their share of total income fall from 71% to 66%. The lowest income group, 30% of households in 1982-6 but increasing to 40% by 1991-6, remained below 9% of national income, on average taking more in benefits than they paid in taxes. *

But the OECD figures show that New Zealand has seen an icrease in child poverty over the past five years.

* Source: International Committee of the Fourth International from NZ figures.