New Zealand: Reserve Bank of New Zealand leaves main policy rate unchanged
October 27, 2011
At its 27 October monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) left the official cash rate (OCR) unchanged at 2.50%, in a decision widely expected by the market. The Bank's decision means that the main policy rate has now been unchanged for eight consecutive months. The RBNZ stated that ?domestic activity has continued to expand at only a modest pace despite relatively strong commodity prices.? However, monetary authorities recognised that business confidence has deteriorated somewhat and that risks regarding the European debt crisis have intensified, threatening a further slowdown in global economic activity. Moreover, monetary authorities reckoned that ?difficult international market conditions could also result in increased New Zealand bank funding costs over the coming year.? Whereas the Bank acknowledged that inflation remains above its 2.0% 1.0% inflation target, it considers that the elevated inflation ?largely reflects the one-off effects of last year's increase in the rate of GST? and will therefore only be temporary. That said, the RBNZ indicated that ?it remains prudent to keep the OCR on hold? for now, but stated that if global developments were to have only a mild impact on the economy, it would tighten the current accommodative stance. The next monetary policy meeting is scheduled for 8 December.
Author: Ricardo Aceves, Senior Economist