New Zealand: Central Bank remains on hold for second consecutive month
October 28, 2010
Inflation fell from 1.7% in the second quarter to 1.5% in the third, which marks the lowest level since the first quarter of 2004. Given the benign inflation environment, the Reserve Bank of New Zealand decided to leave the Official Cash Rate (OCR) unchanged at 3.00% at its 28 October monetary policy meeting. The decision, which was widely expected by the market, represented the second consecutive month that the Bank keeps interest rates on hold. Monetary authorities argued that risks for the global outlook persist, as high public and private debt is precluding a more meaningful recovery in many developed economies. In addition, the Bank stated that recent data suggest that the domestic outlook has weakened more than expected, with consumer spending and the housing market remaining sluggish. However, the Bank stated that, ?while it is appropriate to keep the OCR on hold, it remains likely that further removal of monetary policy support will be required at some stage?, as GDP growth is expected to soak up surplus capacity in the years ahead. In the short term, the Bank expects the recent 15.0% increase on the goods and services tax (GST) to push inflation higher. The next monetary policy meeting is scheduled for 9 December. The Central Bank sees inflation rising to 2.0% in its 2010 fiscal year (ending in March 2011) and 4.1% in fiscal 2011.
Author: Ricardo Aceves, Senior Economist