Governor hints at lower rates for longer
The high dollar and low inflation means the Reserve Bank may keep interest rates lower for longer.
The high dollar and low inflation means the Reserve Bank may keep interest rates lower for longer.
In an unusually short and opaque statement this morning, Reserve Bank governor Alan Bollard opted to keep the official cash rate at 2.5%, and says it will remain at that level "for now".
"The New zealand dollar has stayed elevated despite recent falls in commodity prices," Dr Bollard says.
"Should the exchange rate remain strong without anything else changing the Bank would need to reassess the outlook for monetary policy settings."
He has not elaborated on what that reassessment might involve: whether it would include, as is most likely, a longer period of no change to the OCR than previously indicated; or whether he could go so far as to cut the rate.
Recent inflation figures were lower than anticipated.
The central bank forecast an annual figure of 1.7% for the year to March, but it was actually 1.6% - this was 1.3% when the large rises in taxation of tobacco products is taken out.
That puts the figure well within the Reserve Bank's target band of 1%-3%.
"Inflation is restrained and is expected to stay near the middle of the bank's target range," Dr Bollard says.
"The domestic economy is showing signs of recovery.
"Housing market activity continues to increase and a recovery in building activity appears to be under way, as forecast.
"That recover will strengthen as repairs and reconstruction in Canterbury pick up later in the year."
The Reserve Bank's main concern appears to be offshore.
"The global outlook remains of concern. Near-term indicators have moderated and financial market sentiment is still fragile," he says.
Rob Hosking
Thu, 26 Apr 2012
Thu, 26 Apr 2012
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Governor hints at lower rates for longer
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