New Zealand Monetary Policy Left Unchanged

September 12, 2012

New Zealand’s Official Cash Rate (OCR) has been at 2.5% since a 50-basis point cut in March 2011 following a devastating earthquake on the South Island.   The economy is now benefiting from reconstruction of damaged infrastructure.  However, growth in coming years will be only modest because of dampened demand in export markets, a pricey exchange rate, and fiscal constraint.  The 2.5% level of the OCR matches the cyclical low from June 2009 until June 2010 yet, according to today’s statement from policymakers, is still an “appropriate stance.”  Core inflation happens to be below the mid-point of the 1-3% medium-term target range and is likely to hover near 2% over the medium term. 

During the Great Recession, the OCR was slashed in seven steps from 8.25% to 2.5%.  Hikes of 25 bps each in June and July 2010 were reversed by the cut in March 2011.  The next OCR announcement is set for Halloween.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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