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Friday, Reserve Bank of New Zealand Governor, Alan Bollard said there is still room for the central bank to cut the official cash rate, or OCR, further in response to adverse economic developments.

Bollard`s comments came a day after the central bank slashed its OCR by 150 basis points to 3.50%.

Addressing the Canterbury Employers` Chamber of Commerce, Bollard said, `Lest there be any doubt, the tool box is by no means empty.`

`We have done a lot already and it will take some time for these actions to have their full effects, but we are entering the year well positioned on the monetary policy, liquidity management and prudential policy fronts.`

Bollard noted that the economy is in the middle of a major international shock that is developing from financial turbulence into economic recession.

In the near term, Bollard said, there will be considerable downward pressure on the domestic downturn, which is already well underway. He said weakness in consumer spending, exports are likely to continue throughout the year.

The central bank chief said households, firms and banks will naturally be very cautious in the process of organizing international financial system in the future. The process of readjustment could be very rocky for exposed players, with real economic costs.

He added that past recoveries have occurred suddenly and strongly, and New Zealand needs to remain well positioned for such a recovery.

`Households and firms should not pull down the shutters, and banks should continue to lend on sound business propositions,` Bollard urged. He also said the remedial efforts taken in New Zealand have probably been about as successful as might be expected.

The central banker said within the Western world, New Zealand`s economy and financial system are relatively well-placed to weather the adjustment.

`We have not escaped the impact of the massive international credit crunch. In our case, the tightening has exposed vulnerabilities associated with household and external indebtedness, and how this debt is funded. The global recession is also now affecting us through trade channels and a slump in world commodity prices.`

Further, he said inflation remains under control, following the largest international commodity and asset price surge for decades. He added that the country`s banking system remains well capitalized and has avoided the problematic credit exposures.
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