OCR steady at 2.5pc

The Reserve Bank (RBNZ) announced yesterday that the Official Cash Rate (OCR) would remain on hold at 2.5 per cent for the time being, however they have flagged further ‘modest’ falls over the coming months.

Some economists were in favour of a downwards move now – something the Reserve Bank decided against as it waits for previous cuts to the OCR to pass fully through to the economy – whilst other economists believe that while there are some positive signs, rates should be left where they are so that further moves can be implemented when necessary.

Certainly the Reserve Bank indicated that it expects the OCR to remain at or below its current level well into 2010, and in his announcement following yesterday’s meeting on the OCR, Reserve Bank Governor Alan Bollard said:

“There remain some material downside risks to activity and inflation, but for the first time in some months we can also identify some clear upside opportunities for activity.  One such area is a potential rebound in household spending and residential investment as a result of the rise in net immigration and the pick-up in the housing market.  Ultimately, however, we do not think such a rebound in spending would prove sustainable given the soft outlook for employment, wages and farm incomes and high levels of household debt.

“On balance, the risks to activity remain weighted to the downside.”

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