OCR unchanged at 2.5 percent

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

Reserve Bank Governor Alan Bollard said: “New Zealand’s economic outlook remains consistent with that described in the June Monetary Policy Statement.

“New Zealand’s trading partner outlook remains poor, with several euro-area economies in recession.  There remains a limited risk that conditions in the euro area deteriorate very significantly.  The Bank continues to monitor the situation carefully given the potential for rapid change.

“Domestically, the Bank continues to expect economic activity to grow modestly over the next few years.  Housing market activity continues to increase as forecast, and repairs and reconstruction in Canterbury are expected to further boost the construction sector.  Offsetting this, fiscal consolidation and the exchange rate are constraining demand growth.

“Underlying annual inflation, which recently moved below 2 percent, is expected to settle near the mid-point of the target range over the medium term.

“It remains appropriate for the OCR to be held at 2.5 percent.”