Bollard holds cash rate at 2.5%
RBNZ governor Allan Bollard stressed the risks to the New Zealand economy from offshore economic and financial turmoil.
Reserve Bank governor Alan Bollard opted to leave interest rates alone this morning.
In one of his shortest statements for some time, Dr Bollard stressed the risks to the New Zealand economy from offshore economic and financial turmoil.
"There is a real risk that the European sovereign debt crisis could cause a further slowing in global activity, putting downward pressure on New Zealand's commodity export prices," he said.
"The difficult international market conditions could also result in increased New Zealand bank funding costs over the coming year."
If, however, the offshore problems turn out to have only a mild impact on the New Zealand economy, "it is likely that gradually increasing pressure on domestic resources will require future OCR increases."
Dr Bollard's terse statement gave no hint as to the likely timing or path of those possible increases.
The Reserve Bank is clearly less worried about inflation - at this stage, anyway - than it was earlier in the year.
Consumer inflation figures this week were much lower than most economists - including the Reserve Bank - anticipated. Once the GST one-offs have passed through, "underlying inflation is settling near 2%."
The Reserve Bank's previous estimate of underlying inflation was 2.5%.
That allows the central bank a bit more leeway to wait before any more upwards moves on interest rates. At present, the overnight index swap (OIS) markets have not priced in any rises in the OCR until mid 2012.
Business confidence survey figures released yesterday also show firms' expectations of activity for the coming year have taken a bit of a dousing, although they remain - just - in positive territory.
Overall, Dr Bollard said, domestic economic activity has only expanded at a "modest" pace.
Rob Hosking
Thu, 27 Oct 2011
Thu, 27 Oct 2011
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Bollard holds cash rate at 2.5%
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