Most financial commentators were predicting a drop in the OCR (Official Cash Rate) but I don't think too many were picking the move Reserve Bank Governor Alan Bollard chose to make - a massive drop of half a percent to 7.5% - the biggest single change to the OCR since 2001.

While the 0.5% drop will be welcomed by those with a mortgage and exporters Mr Bollard's decision will make some people - those who save - worse off. While the Government tries to encourage us to save the lower OCR will see a drop in bank interest rates and encourage spending. So now we have two conflicting viewpoints - one from the Government suggesting we need to save more, and one from the Reserve Bank (no doubt urged on by the Government) suggesting we need to save less and spend our way out of recession.

The job of the Reserve Bank Governor is to keep inflation between 1% and 3%. Yesterday's decision is certain to raise the level of inflation, and this after a period of high inflationary pressure. It's interesting to note the reasons given for the last OCR rise in July 2007, and contrast those with today. Then Mr Bollard said this :-

“However, the continued tight labour market, high capacity use, and rising oil and food prices all point to sustained inflationary pressures. That is why we are increasing the OCR today."

So what has changed the decision making process?