Reserve Bank of New Zealand Policy Decision: No Rate Change

December 11, 2013

New Zealand’s official cash rate has been at 2.5% since a 50-basis point cut in March 2011 reversed hikes of 25-bp each in June and July of 2010 and returned such to its cyclical low.  A statement from Governor Wheeler projects upwardly trending inflation from 1.4% in the year to 3Q13 and retains a policy bias toward tightening.

The extent and timing of price pressures will depend largely on movements in the exchange rate, changes in commodity prices, and the degree to which momentum in the housing market and construction activity spills over into broader cost and price pressures.  The Bank will increase the OCR as needed in order to keep future average inflation near the 2 percent target midpoint.

The statement observes “considerable momentum” in the economic upswing but identifies the high kiwi and planned fiscal consolidation as mitigating factors.  An eventual weakening of the kiwi is forecast. 

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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