Bollard holds OCR at 3%; coy on timing of future rises

Bollard holds OCR at 3% but remains coy on future changesThe official cash rate remains at 3%, Reserve Bank governor Alan Bollard announced this morning.The decision was not unexpected: none of the economists who follow monetary policy expect any change in the OCR before March next year.However Dr Bollard himself was not giving anything away in his statement which accompanied the decision.

Bollard holds OCR at 3% but remains coy on future changes

The official cash rate remains at 3%, Reserve Bank governor
Alan Bollard announced this morning.

The decision was not unexpected: none of the economists who follow monetary policy expect any change in the OCR before March next year.

However Dr Bollard himself was not giving anything away in his statement which accompanied the decision.

“While it is appropriate to keep the OCR on hold today, it remains likely that further removal of monetary policy support will be required at some stage,” he said.

Developments in the economy since the last review six weeks ago, although mostly weaker than anticipated, have not changed the cental bank’s medium term outlook, he said.

“Continued household caution has seen consumer spending and housing market activity remain muted, and many firms have become less optimistic about their future prospects. However, continued high export prices, along with reconstruction and repairs in Canterbury, will support activity over the coming year.”

The Reserve Bank is clearly not too worried about inflation at the moment: although the GST increase is likely to see a spike in the Consumer Price Index the “subdued state of domestic demand” means this is unlikely to have any medium or longer term effect.

The statement also noted the global situation, with high public and private debt levels inhibiting recovery in many countries. In an apparent reference to recent quantitative easing moves by the United States and other countries, Dr Bollard commented “it is unclear how further policy support would impact on the outlook for growth in our Western trading partners.”

Offsetting that however is continued strong growth in China, Australia and other emerging Asian countries.

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