Ganesh discusses the latest OCR cut. Click image for NZI Business interview.

Yes, today’s announcement of a reduction in the Official Cash Rate (OCR) to 8.0 percent is indeed welcome news.

 As explained by the Reserve Bank (RB) Governor in his statement, the economy is now sufficiently weak for inflation pressures to be restrained over the medium term.

However, the needs of the wider New Zealand economy continue to be secondary to RB’s primary function to limit growth in activity within the constraints set by the resources available.

Unfortunately, this primary function means any activity designed to add to resources and so reduce the impact of the constraints is discouraged, if not penalised.

So the New Zealand economic policy framework is still in need of total overhaul. If not, timid cuts in interest rates will do little to underpin any growth in income.

And there will be some who will continue to occupy themselves with short-term side-shows.

For example, headlines reporting on the OCR cut are likely to focus on the rapid reduction in the NZ$ exchange rate.

It will be interesting to hear the reactions now of those who had previously told us the strength of the NZ$ was not related to New Zealand interest rates but to the weakness of the US$. The headlines will, no doubt, also tell us how the NZ$ decline will just make inflation worse. And so the merry-go-round ride continues.

Meanwhile, the finance sector burns and equity prices sink.

By my count, there are now three generations of New Zealanders who are likely to have negative attitudes to savings. My parents' generation were stung badly in the late-1980s, My generation got taken to the cleaners in the late-1990s. And, now, try teaching my children and their generation, the virtues of savings and thrift. They’ll laugh in your face – and who’s to blame them.

Perhaps, the economy is safe despite these finance failures. For now, perhaps. But the longer-term impact on savings behaviour, and its impact on a New Zealand economy and its propensity to live on borrowed funds, can only be negative.