OCR unchanged at 3.5 percent - Te Pūtea Matua
Central bank: rbnz | Type: statement | Date: 2015-01-01

OCR unchanged at 3.5 percent
OCR unchanged at 3.5 percent
Published:
29 January 2015
Statement issued by Reserve Bank
Governor Graeme Wheeler:
The Reserve Bank today left the Official Cash Rate unchanged at 3.5
Trading partner growth in 2015 is expected to be similar to 2014, though the
outlook is weaker than anticipated last year. Divergences continue among
regions, with growth in China, Japan and the euro area easing in recent
quarters, while growth in the US has remained robust.
World oil prices have fallen 60 percent since June last year, which will
boost spending power in oil importing economies but reduce incomes for oil
exporters. The oil price decline, together with uncertainties around the
transition of US monetary policy, has led to an increase in financial market
volatility.
The lower oil price will have a significant impact on prices and activity in
New Zealand. The most direct and immediate effects are through fuel prices, with
the price of regular petrol falling from a national average of $2.23 in mid-2014
to $1.73 currently. This will increase households' purchasing power and
lower the cost of doing business.
Annual economic growth in New Zealand is above 3 percent, supported by rising
construction activity and household incomes. The housing market is showing signs
of picking up, particularly in Auckland. However, fiscal consolidation, the
reduced dairy payout, the risk of drought, and the high exchange rate will weigh
on growth.
While the New Zealand dollar has eased recently, we believe the exchange rate
remains unjustified in terms of current economic conditions, particularly export
prices, and unsustainable in terms of New Zealand's long-term economic
fundamentals. We expect to see a further significant depreciation.
The high exchange rate, low global inflation, and falling oil prices are
causing traded goods inflation to be very weak. Non-tradables inflation remains
moderate, despite buoyant domestic demand and an improving labour market.
Headline annual inflation is expected to be below the target band through 2015,
and could become negative for a period before moving back towards 2 percent,
albeit more gradually than previously anticipated.
In the current circumstances, we expect to keep the OCR on hold for some
time. Future interest rate adjustments, either up or down, will depend on the
emerging flow of economic data.
Media Contact:
Mike Hannah, Head
of Communications,
Ph 04 471 3671, 021 497 418,
mike.hannah@rbnz.govt.nz