OCR unchanged at 7.25 percent - Te Pūtea Matua
Central bank: rbnz | Type: statement | Date: 2006-01-01

OCR unchanged at 7.25 percent
Published:
26 January 2006
The Official Cash Rate (OCR) will remain unchanged at 7.25 percent.
Reserve Bank Governor Alan Bollard said: "The economy has continued to
slow in recent months, broadly in line with the outlook contained in our
Monetary Policy Statement
. GDP growth slowed in the third
quarter of 2005, due to the impact of the high exchange rate on the export and
import-competing sectors, and a fall in construction. Looking to 2006, while
there are some early indications, we are yet to see hard evidence of a sustained
slowdown in domestic demand. To date, strong domestic demand has been fuelled
by strong employment, wage growth, rising house prices, and growth in Government
spending. Overall, total spending continues to outstrip growth in production,
contributing to an unsustainably large current account deficit.
"Over recent years, considerable pressures have built up on resources,
leading to the current high level of inflation. While capacity and resource
constraints appear now to be easing, inflation pressures remain of concern.
Annual CPI inflation stands at 3.2 percent, and our forecasts point to inflation
remaining toward the upper end of the target band over the next couple of years.
Continuing increases in wages, energy prices and other business costs suggest
that inflation pressures will not subside quickly. Of particular concern,
inflation expectations remain uncomfortably high.
"Given this situation, we do not expect to raise the OCR further in
this cycle; however, this possibility cannot be ruled out until we see clear
evidence of a sustained weakening in domestic demand. Certainly we see no
prospect of an OCR easing, given the relatively high medium-term inflation
outlook. An early decline in interest rates, as expected by some in the
financial markets, would risk reigniting spending and hence inflation
pressures."
For further information contact:
Mike Hannah
of Communications
Ph 04 4713671, 021 497418,
mike.hannah@rbnz.govt.nz