New Zealand Monetary Policy

New Zealand

New Zealand: Central Bank keeps rates unchanged for third consecutive month

December 9, 2010

At its 9 December monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) decided to keep the Official Cash Rate (OCR) unchanged at 3.00%, in a decision widely expected by the market. The decision to leave rates unchanged followed on two consecutive months during which the Bank has maintained a dovish tone. With inflation falling from 1.7% in the second quarter to 1.5% in the third quarter, the Central Bank acknowledged that the recent goods and services tax (GST) increase in October will cause headline inflation to rise only temporarily and will not affect price and wage-setting behaviour. Moreover, the Bank claimed that the pace of economic growth has softened, with recent indicators suggesting that households and businesses remain cautious about the domestic outlook. However, monetary authorities anticipate economic activity in New Zealand's main trading partners to continue expanding. In particular, growth within the Asia-Pacific region is expected to remain resilient, resulting in higher exports volumes for New Zealand. Furthermore, the Bank argued that reconstruction efforts from September's earthquake in the Canterbury region will provide a temporary boost to growth in the months to come. Moreover, the Bank stated that it seems ?prudent to keep the OCR low until the recovery becomes more robust and inflationary pressures show more obvious signs of increasing?. The next monetary policy meeting is scheduled for 27 January. In its December monetary policy statement, the Central Bank sees inflation rising to 2.0% in the fiscal year 2010 (ending in March 2011) and 4.3% in fiscal 2011.

Author:, Senior Economist

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