New Zealand Monetary Policy

New Zealand

New Zealand: Reserve Bank of New Zealand stays put

September 15, 2011

At its 15 September monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) left the official cash rate (OCR) unaltered at 2.50%, in a decision broadly expected by the market. The decision represents the sixth consecutive month that monetary officials have left the policy rate unchanged. The RBNZ argued that ?domestic economic activity has surprised on the upside? and ?high export commodity prices and, in time, reconstruction in Canterbury are expected to provide impetus to demand?. However, the Bank recognises that global financial risks have intensified and the outlook for New Zealand's trading partners has deteriorated with a ?real risk that global economic activity slows sharply?. While monetary authorities acknowledged that inflation remains above the Bank's 2.0% 1.0% inflation target, they claimed that ?much of the current spike in inflation has been driven by last year's increase of the goods and services tax (GST), and will therefore be temporary.? That said, the Central Bank indicated that it would remove the current accommodative stance if recent global developments only have ?a mild impact? on the economy. The next monetary policy meeting is scheduled for 27 October. As outlined in its September Monetary Policy Statement, the RBNZ expects that inflation will overshoot its inflation target and average 4.5% in the fiscal year 2011 (ending in March 2012), before declining to 2.1% in fiscal 2012.

Author:, Senior Economist

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