New Zealand: Central Bank leaves interest rates unchanged
June 9, 2011
At its 9 June monetary policy meeting, the Reserve Bank of New Zealand maintained the official cash rate (OCR) at 2.50%, in an outcome widely expected by the market. The decision came after monetary authorities left the policy rate unchanged at its April meeting, pausing the tightening in an attempt to cushion the economic impact of February's earthquake. Monetary officials stated that the economic outlook has improved since March, as business and consumer confidence recovered, suggesting that the near-term negative effects of the quake have been contained. In addition, the Bank argued that despite some signs of weakness in the global economy, commodity prices remain elevated, benefiting the country's external position. Nevertheless, the Bank expects that private consumption will grow only modestly in the year ahead and that the fiscal consolidation plan proposed by the government will dampen activity. Moreover, monetary authorities indicated that inflation is being fuelled by an increase in indirect taxes as well as by high food and energy costs, prompting inflation expectations to increase. In contrast at its April meeting, the Central Bank hinted at a more hawkish stance, indicating that rates may rise towards the end of the year.
Author: Ricardo Aceves, Senior Economist