Global and domestic outlooks positive, OCR remains at 2.5 percent
(31 January 2013 – New Zealand) Looking at the positive global financial market sentiment, the Reserve Bank of New Zealand (RBNZ) left the official cash rate (OCR) unchanged at 2.5 percent today.
RBNZ governor Graeme Wheeler said global growth was set to recover in 2013 with economic indicators improving for many of New Zealand’s trading partners.
"Consistent with this, global financial market sentiment is positive, contributing to lower bank funding costs and some reduction in interest rates faced by households and firms in New Zealand.
"Domestically, recent data on business confidence and construction activity suggest GDP growth is recovering from the softness seen through the middle of last year."
Wheeler said the Canterbury rebuild is gathering momentum and its impact will be felt more broadly in incomes and domestic demand.
The RBNZ is keeping a close eye on increased house price inflation and household credit growth closely.
"The Bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply," Wheeler said.
Inflation remains subdued and is currently just below the bottom of the RBNZ’s inflation target range, reflecting the impact of the overvalued New Zealand dollar.
The high currency is directly suppressing inflation on traded goods, and is undermining profitability in export and import competing industries. At the same time, the labour market remains weak and fiscal consolidation is dampening growth according to the RBNZ.
"Overall, we expect economic growth to strengthen over the coming year; reducing spare capacity and bringing inflation slowly back towards the 2 percent target midpoint.
"On balance, it remains appropriate for the OCR to be held at 2.5 percent."
"Consistent with this, global financial market sentiment is positive, contributing to lower bank funding costs and some reduction in interest rates faced by households and firms in New Zealand.
"Domestically, recent data on business confidence and construction activity suggest GDP growth is recovering from the softness seen through the middle of last year."
Wheeler said the Canterbury rebuild is gathering momentum and its impact will be felt more broadly in incomes and domestic demand.
The RBNZ is keeping a close eye on increased house price inflation and household credit growth closely.
"The Bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply," Wheeler said.
Inflation remains subdued and is currently just below the bottom of the RBNZ’s inflation target range, reflecting the impact of the overvalued New Zealand dollar.
The high currency is directly suppressing inflation on traded goods, and is undermining profitability in export and import competing industries. At the same time, the labour market remains weak and fiscal consolidation is dampening growth according to the RBNZ.
"Overall, we expect economic growth to strengthen over the coming year; reducing spare capacity and bringing inflation slowly back towards the 2 percent target midpoint.
"On balance, it remains appropriate for the OCR to be held at 2.5 percent."
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