Reserve Bank of New Zealand: Steady Policy as She Goes

June 13, 2012

It remains appropriate for monetary policy to remain stimulatory.

So states the fourth scheduled Official Cash Rate decision announcement of 2012.  The OCR has been at 2.5% since a 50-basis point cut in March 2011.  That reduction undid 25-bp increases enacted in June and July of 2010, returned the policy rate to its all-time low, and was prompted by the Canterbury earthquake.  Reconstruction in the stricken areas of the South Island figure to be a major engine of growth in the coming year.  The economy will need this stimulus to offset drags from tighter fiscal policy, lower export commodity prices, and intensifying political and economic stresses in Europe.  Officials project a pick-up in GDP growth to just over 3 percent next year and expect inflation to settle near the midpoint of the target range.  Kiwi depreciation has been welcomed rather than a source of concern to the authorities.  Little urgency is attached to changing the policy stance. 

In the Great Recession, the OCR was slashed in seven steps between July 2008 and June 2009 from 8.25% to 2.5%.

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



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