Keeping a steady hold

The Reserve Bank left the Official Cash Rate (OCR) unchanged at 2.5 per cent in January, in a move that was welcome at the start of a new year but hardly surprising.

Reserve Bank Governor Alan Bollard commented that the outlook for the New Zealand economy remains consistent with the projections underlying the December Monetary Policy Statement.

“Global activity continues to recover, helping push New Zealand’s export commodity prices higher,” Governor Bollard said.

“Economic growth is most apparent in China, Australia, and emerging Asia.

“However, sustained growth throughout our trading partners is not assured, with many still facing impaired financial sectors and overall activity still reliant on policy support.”

Similarly, the New Zealand economy is continuing to recover. Policy stimulus and improving export earnings have seen a pickup in household spending, though households remain cautious, with credit growth subdued.

“Annual CPI inflation is currently at the centre of the target band, and is expected to track comfortably within the band over the medium term,” Governor Bollard said.

“The economy is being assisted by both monetary and fiscal policy support.

“As growth becomes self sustaining, fiscal consolidation would help reduce the work that monetary policy might otherwise need to do.

Governor Bollard concluded by saying that if the economy continues to recover in line with our December projections, he would expect to begin removing policy stimulus around the middle of 2010.