Free content by Fresh Content.net

Thursday, July 25

OCR unchanged at 2.5 percent

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

Reserve Bank Governor Graeme Wheeler said: “The global outlook remains mixed, with the euro area still in recession and signs of slower growth in China and Australia, but more positive recent indicators in the United States and Japan.  Global debt markets have become more cautious due to uncertainty around the Federal Reserve’s anticipated exit from quantitative easing.

“Growth in the New Zealand economy is picking up and, although uneven, is becoming more widespread across sectors.  Consumption is increasing and reconstruction in Canterbury will be reinforced by a broader national recovery in construction activity, particularly in Auckland.  This will support aggregate activity and eventually help to ease the housing shortage.

“In the meantime rapid house price inflation persists in Auckland and Canterbury.  As previously noted, the Reserve Bank does not want to see financial or price stability compromised by housing demand getting too far ahead of the supply response.

“Despite having fallen on a trade-weighted basis since May 2013, the New Zealand dollar remains high and continues to be a headwind for the tradables sector, restricting export earnings and encouraging demand for imports.  Fiscal consolidation will weigh on aggregate demand over the projection horizon.

“CPI inflation has been very low over the past year, reflecting the high New Zealand dollar and strong international and domestic competition.  However, inflation is expected to trend upwards towards the mid-point of the 1-3 percent target band as growth accelerates over the coming year.

“The extent of the monetary policy response will depend largely on the degree to which the growing momentum in the housing market and construction sector spills over into inflation pressures.

“Although removal of monetary stimulus will likely be needed in the future, we expect to keep the OCR unchanged through the end of the year.”