Official Cash Rate Unchanged at 2.5 percent

The Reserve Bank left the Official Cash Rate (OCR) unchanged at 2.5 percent on Thursday.

Reserve Bank Governor Alan Bollard said: “New Zealand’s economic outlook has weakened a little since the March Monetary Policy Statement.”

Political and economic stresses in Europe, along with a run of weaker-than-expected data, have seenNew Zealand’s trading partner outlook worsen. Furthermore, there is a small but growing risk that conditions in the euro area deteriorate more markedly than is projected in the June Statement. The Bank is monitoring euro-area developments carefully given the potential for rapid change.

Increased agricultural production and the weakened global outlook have drivenNew Zealand’s export commodity prices lower. The resulting moderation in export incomes, although partially offset by depreciation in the exchange rate, will weigh on economic activity inNew Zealand. Fiscal consolidation is also likely to constrain demand growth going forward.

Offsetting these negative influences, housing market activity continues to increase, supported by recent reductions in mortgage interest rates. In addition, repairs and reconstruction inCanterburyare expected to substantially boost construction sector activity in coming quarters. Aggregate GDP growth is projected to pick up slightly to just over 3 percent next year. Given this economic outlook, inflation is expected to settle near the mid-point of the target range.

“It remains appropriate for monetary policy to remain stimulatory, with the OCR being held at 2.5 percent.”

RBNZ: Sonia Speedy, External Communications Adviser

Please see the Monetary Policy Statement for full details.

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