OCR reduced to 8.0 percent - Te Pūtea Matua
Central bank: rbnz | Type: statement | Date: 2008-07-01

OCR reduced to 8.0 percent
Published:
24 July 2008
The Reserve Bank today reduced the
Official Cash Rate (OCR) from 8.25 percent to 8.0 percent.
Reserve Bank Governor Alan Bollard commented that "more unpleasant
international news has emerged since the June
Monetary Policy
, and there is a risk that the domestic economy will slow further.
Moreover, the cost of funds raised abroad by banks has been rising in recent
months as the international financial situation has deteriorated.
Today's cut will help to mitigate the effect of these increases on the
actual borrowing costs paid by firms and households.
"Recent oil and food price increases mean that annual CPI inflation
should peak around 5 percent in the September quarter of this year. However, we
expect that inflation will return inside the target band in the medium term.
The weaker economy is expected to reduce pressure on resources, making it more
difficult for firms to pass on costs and for higher wage claims to be agreed.
"Economic activity is likely to remain weak over the remainder of 2008.
The ongoing correction in the housing market, together with the very high oil
prices, will limit household spending and constrain the extent of recovery.
However, high export prices and an expansionary fiscal policy are expected to
contribute to a gradual pickup in activity through 2009.
"Consistent with the Policy Targets Agreement, the Bank's focus
will remain on medium-term inflation. In this regard, it is important to note
that monetary policy has been reasonably tight for some time, and is now
restraining activity and medium-term inflation pressures. Provided that the
outlook for inflation continues to improve and there is no excessive exchange
rate depreciation, we would expect to lower the OCR further."
Media contact:
Mike Hannah
Head of Communications
Ph 04 4713671, 021
mike.hannah@rbnz.govt.nz