Official cash rate unchanged for 'some time to come'

The official cash rate (OCR) will remain unchanged at 1.75% for "some time to come," Reserve Bank governor Adrian Orr says.

In a statement released this morning, Mr Orr says the direction of the bank's next move is equally balanced, up or down. "Only time and events will tell," he says.

Emerging capacity constraints are projected to see New Zealand’s consumer price inflation gradually rise to the bank's 2% annual target and lead to more business investment.

"To best ensure this outcome, we expect to keep the OCR at this expansionary level for a considerable period of time. This is the best contribution we can make, at this moment, to maximising sustainable employment and maintaining low and stable inflation," he says.

New Zealand's economic growth and employment in New Zealand remain robust, near their sustainable levels, he says.

However, consumer price inflation remains below the 2% mid-point of our target due, in part, to recent low food and import price inflation, and subdued wage pressures, Mr Orr says.

"The recent growth in demand has been delivered by an unprecedented increase in employment. The number of willing workers continues to rise, especially with more female and older workers choosing to participate. Likewise, net immigration has added to the supply of labour, and the demand for goods, services, and accommodation."

Global economic growth is forecast to continue supporting demand for New Zealand’s products and services while global inflation pressures are expected to rise but remain contained, he says.

Domestic spending and investment, by both households and government, is expected to support economic growth and employment demand.

Expectations of where inflation will be in two years’ time fell sharply in the Reserve Bank’s latest quarterly survey released yesterday but expectations of where it will be in 10 years’ time rose even more sharply.

The survey found inflation in two years’ time is expected to be 2.01%, down from 2.11%, and reversed the surprising lift in this measure in the previous survey.

But it also found inflation in 10 years’ time is expected to be 2.18%, up from 2.05% in the last survey.

More to come.