New Zealand Monetary Policy

New Zealand

New Zealand: Central Bank leaves policy rate unchanged at record low

March 8, 2012

At its 8 March 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 private sector analysts. The Central Bank has kept the main policy rate on hold since March 2011, when monetary authorities shaved 0.50 percentage points off, in a measure aimed at cushioning the effects of the Christchurch earthquake. In the accompanying statement, Bank officials argued that inflation expectations have fallen, and that the current rate is settled well within the 1% - 3% inflation target range. They further stated that ?the domestic economy is showing signs of recovery? and that ?the recovery will strengthen as repairs and reconstruction in Canterbury pick up later in the year?. The Bank acknowledged that although the marked appreciation of the New Zealand dollar (NZD) is helping to maintain inflationary pressures at bay, its current high value is detrimental to the external sector and, consequently, to GDP growth. Nevertheless, the Bank believed that ?sustained strength in the New Zealand dollar would reduce the need for future increases in the OCR.? The next monetary policy meeting is scheduled for 26 April. Meanwhile, in its March Monetary Policy Statement, the RBNZ revised its inflation expectations for this fiscal year (ending March 2013) and now expects inflation to average 1.5%, down from its previous 2.0% projection. For fiscal 2013 (ending March 2014), the Bank forecasts inflation to average 1.8%.

Author:, Senior Economist

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