OCR unchanged at 7.25 percent - Te Pūtea Matua
Central bank: rbnz | Type: statement | Date: 2006-07-01

OCR unchanged at 7.25 percent
Published:
27 July 2006
The Official Cash Rate (OCR) will remain unchanged at 7.25 percent.
Reserve Bank Governor Alan Bollard said: "Recent economic developments
have been broadly in line with our
June Monetary Policy
. However, economic activity has been a little stronger than
expected. Indicators of both consumer demand and business activity have not
softened to the degree anticipated. We are also seeing slightly more short-term
inflation pressure as a result of the continued upward trend in world oil
prices. Headline annual CPI inflation reached 4 per cent in the June quarter
and is likely to persist around this level for several quarters to come. We
remain wary of the risks to inflation expectations presented by these high
headline inflation rates.
"Our medium-term view is for underlying inflation pressures to trend
downwards. Economic growth is forecast to remain subdued through 2006 and 2007,
and CPI inflation is expected to return within the 1-3 percent target range by
late 2007. The rebalancing of economic activity – away from domestic
demand and towards exports and import substitution – is expected to
continue and will help to alleviate domestic inflation pressures. The
rebalancing will be supported by the weaker New Zealand dollar exchange rate and
ongoing upward pressure on effective mortgage rates. Foreign interest rate
trends and domestic market expectations are both now working to support our
domestic policy stance.
"We maintain our view that the current level of the OCR is consistent
with returning inflation to the target range. While second-round wage and price
effects remain a risk, we do not expect to have to tighten the OCR further in
this cycle. However, a sustained period of adjustment in domestic spending is
necessary, and it will be some time before an easing in the OCR can be
considered. Certainly we will need to be confident that future inflation is
heading back comfortably within the target range."
For further information contact:
Mike Hannah
Communications
Ph 04 4713671, 021 497418,
mike.hannah@rbnz.govt.nz