New Zealand: Central Bank leaves rates unchanged for fourth consecutive month
January 27, 2011
At its monetary policy meeting on 27 January, the Reserve Bank of New Zealand decided to leave the Official Cash Rate (OCR) unchanged at 3.0%, in a decision widely expected by the market. The decision to leave rates unchanged followed on three consecutive months during which the Bank maintained a similarly dovish tone. Monetary authorities framed the decision as ?prudent until the recovery becomes more robust? and ?underlying inflationary pressures show more obvious signs of increasing?. The Central Bank acknowledged that the recent increase in the goods and services tax (GST) caused inflation to spike more than expected in the fourth quarter (Q3: 1.1%; Q4: 2.3%). Nevertheless, underlying inflation remains inside the target band. Moreover, the latest economic information shows that the economy lost momentum in the second half of 2010, with GDP contracting unexpectedly in the third quarter. Moreover, the Bank stated that interest rates are likely to increase ?modestly? over the next two years. The next monetary policy meeting is scheduled for 10 March. The Central Bank has an inflation target of 2% (1 percentage points). In its December monetary policy statement, monetary officials anticipate inflation to rise to 2.0% in the fiscal year 2010 (ending in March 2011) and 4.3% in fiscal 2011.
Author: Ricardo Aceves, Senior Economist