Reserve Bank raises OCR to 3 percent - Te Pūtea Matua
Central bank: rbnz | Type: statement | Date: 2014-04-01

Reserve Bank raises OCR to 3 percent
The Reserve Bank today increased the OCR by 25 basis points to 3 percent.
Published:
24 April 2014
issued by Reserve Bank Governor Graeme Wheeler:
The Reserve Bank today increased the OCR by 25 basis
points to 3 percent.
New Zealand's economic expansion has
considerable momentum, with GDP estimated to have grown by 3.5 percent in the
year to March. Growth is gradually increasing in New Zealand's trading
partners, but inflation in those economies remains low. Global financial
conditions continue to be very accommodating.
Prices for New Zealand's export commodities
remain very high, though auction prices for dairy products have fallen by 20
percent in recent months. Domestically, the extended period of low interest
rates and strong growth in construction sector activity are supporting the
recovery. Net immigration continues to increase, boosting housing and consumer
demand. Confidence remains very high among households and businesses, and
measures of investment and employment intentions are positive.
Spare capacity is being absorbed, and inflationary
pressures are becoming apparent, especially in construction and other
non-tradable sectors. The high exchange rate remains a headwind to the tradables
sector, and along with low import price inflation has been holding down
tradables inflation. The Bank does not believe the current level of the exchange
rate is sustainable.
There has been some moderation in the housing market.
Restrictions on high loan-to-value ratio mortgage lending are easing pressure,
and rising interest rates will have a further moderating influence. However, the
increase in net immigration is adding to housing demand.
Headline inflation is moderate, but inflationary
pressures are increasing and are expected to continue doing so over the next two
years. In this environment it is important that inflation expectations remain
contained. To achieve this it is necessary to raise interest rates towards a
level at which they are no longer adding to demand. The speed and extent to
which the OCR will be raised will depend on economic data and our continuing
assessment of emerging inflationary pressures, including the extent to which the
high exchange rate leads to lower inflationary pressure.
By increasing the OCR as needed to keep future average
inflation near the 2 percent target mid-point, the Bank is seeking to ensure
that the economic expansion can be sustained.
Media Contact:
Angus Barclay,
External Communications Adviser
Ph 04 471 3698, mob 027 337 1102,
angus.barclay@rbnz.govt.nz