Bollard holds rates at 2.5%, says likely to stay there for 'some time'
Reserve Bank governor Alan Bollard has held the official cash rate steady at 2.5% and said it is likely to remain there for some time.
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Reserve Bank governor Alan Bollard this morning left the official cash rate at 2.5% and said any changes appear some time away.
“Given the outlook for core inflation and continued economic disruption stemming from the earthquakes, the current level of the OCR is likely to remain appropriate for some time,” he said.
The present high level of the New Zealand dollar – which this week hit levels against the US dollar not seen since before the 2008 economic downturn – is “unwelcome”, Dr Bollard said, as are higher oil prices.
Those prices, of course, would be even higher if it were not for the high New Zealand currency, which yesterday breached the US$0.81 mark.
The overnight index swap (OIS) market has priced in interest rate rises from December, and most economists believe the Reserve Bank will start lifting the OCR sometime over the summer, although there is a wide range of views on just when and how fast the rate rises should be.
That range depends on different views of the inflation outlook and also on just how fast the New Zealand economy will return to meaningful growth.
Today’s statement suggests the Reserve Bank is cautiously upbeat about economic activity picking up in the latter part of this year, and has a relatively relaxed view of inflation.
“Headline inflation is currently being boosted by recent increases in indirect taxes. Annual inflation is expected to settle comfortably within the target band once these tax increases drop out of the annual rate.”
The target band is 1-3% and annual consumer prices index is currently at 4.5%.
Economic activity outside Christchurch is “relatively unaffected”, he said, with signs of a long awaited pick up in business investment and in housing market turnover.
“Trading partner growth remains robust, helping push New Zealand’s export commodity prices higher. Along with relatively favourable climatic conditions, the improved price outlook is supporting a pickup in on-farm investment.”
Rob Hosking
Thu, 28 Apr 2011
Thu, 28 Apr 2011
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Bollard holds rates at 2.5%, says likely to stay there for 'some time'
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