New Zealand Monetary Policy Remains in Pause Mode

January 26, 2011

The official cash rate, which has been 3.0% since a second hike of 25 basis points in July 2010, was again left unchanged.  The first hike of 25 bps was made in June 2010 from a cyclical low of 2.5% between April 2009 and that month.  During the great recession, the cash rate was slashed from 8.25% to 2.5% in seven steps squeezed between September 2008 and April 2009. 

In keeping a 3.0% cash rate, officials at the Reserve Bank of New Zealand dismissed a 2.3% leap in the CPI last quarter.  Such followed a 1.5% quarterly advance in 3Q10 caused by a higher goods and services tax effective October 1st.  On-year inflation rose to 4.0% from 1.5% in the third quarter.  A statement posted on the central bank web site noted that core inflation remains comfortably between its target boundaries.  Meanwhile, GDP fell in 3Q10 and grew more slowly than anticipated over the whole second half of last year, with consumer spending also declining in the fourth quarter.  While better growth in export markets, higher export commodity prices, some better news out of the housing market and a pickup of capital equipment imports bode favorably for future growth, officials prefer to wait for a more robust pace of economic growth and signs of core price pressure before resuming policy tightening.  As in other earlier statements, a modest increase of the cash rate over the next two years is deemed likely.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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