Bollard lifts OCR to 2.75% but is opaque on further rises
The Reserve Bank this morning increased the official cash rate from 2.5% to 2.75%.
The move surprised few: the overnight index swap market had priced in a rate rise and Reserve Bank governor Alan Bollard signalled at the end of April he planned lifting t
Rob Hosking
Thu, 10 Jun 2010
The Reserve Bank this morning increased the official cash rate from 2.5% to 2.75%.
The move surprised few: the overnight index swap market had priced in a rate rise and Reserve Bank governor Alan Bollard signalled at the end of April he planned lifting the OCR “over the coming months.”
Yet the accompanying statement is opaque as to the likely timing and extent of further rate rises.
The Reserve Bank foresees a steady but unspectacular recovery over the next 18 months, and, “given this outlook and as previously signalled, we have decided to begin removing some of the monetary policy stimulus that is currently in place,” Dr Bollard said.
“The further removal of stimulus will be reviewed in light of economic and financial market developments.”
The Reserve Bank is not likely to need to raise the OCR as high as it was during the last boom – it peaked at 8.25% – because bank funding costs are higher, long-term interest rates are higher than short-term interest rates, and a greater proportion of borrowers use floating rate mortgages, Dr Bollard said.
“Underlying CPI inflation is expected to track within the target range even as the economy expands further. That said, headline CPI inflation will be boosted temporarily by the announced increase in GST and other government-related price changes.
“Provided households and firms do not reflect this price spike in their wage and price-setting behaviours we do not expect a lasting impact on inflation.
Rob Hosking
Thu, 10 Jun 2010
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