OCR at 2.5 per cent

At the end of April, the Reserve Bank reduced the Official Cash Rate (OCR) by 50 basis points to 2.5 per cent.

Reserve Bank Governor Alan Bollard said that overall, developments since March point to lower medium-term inflation than previously projected.

While global financial markets have shown some tentative signs of stabilisation since the March Monetary Policy Statement, a large amount still needs to be done and sentiment remains fragile, according to the Reserve Bank.

“While the New Zealand economy has not experienced the same extreme falls in economic activity as seen in a number of our trading partners, it remains weak,” Governor Bollard said.

The Governor warned that he expects the large decline in the OCR over the past year to pass through to more borrowers over coming quarters as existing fixed-rate mortgages come up for re-pricing.

He also said the Reserve Bank expects to keep the OCR at or below the current level through the latter part of 2010.

“The OCR could still move modestly lower over the coming quarters,” Governor Bollard concluded.

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