Reserve Bank of New Zealand
5 June 2003
News Release
RBNZ reduces OCR to 5.25 per cent
The Reserve Bank has decided to cut the Official Cash Rate by 25 basis points to 5.25 per cent.
Speaking at the release of the Reserve Bank's June 2003 Monetary Policy Statement, Reserve Bank Governor Alan Bollard
said "Reducing the OCR is an appropriate response to a softening in inflation pressures and provides some protection for
the economy against downside influences.
"The evidence has become clearer that growth is beginning to slow following a period of strength. This slowdown mainly
reflects the rapid appreciation of the exchange rate over the past 18 months, leaving the export sector more exposed to
the soft world economy. We are projecting further slowing but expect domestic activity to remain reasonably robust with
rapid growth in the population supporting demand. However, businesses are less assured about future trading prospects
and confidence measures have fallen away. With confidence fragile, the impact of events such as SARS and dry weather on
activity could be amplified.
"The reformulated Policy Targets Agreement requires us to target inflation with a medium term focus and to avoid
unnecessary instability in output, the exchange rate and interest rates. This OCR decision is intended to help prevent
an unnecessarily sharp downturn, while delivering inflation that remains comfortably within the target range over the
next few years. Influencing our decision is increased certainty that the economy has started to turn down, and the
presence of downside risks - foreign and local - whose effects may be exaggerated by fragile confidence. In addition,
CPI inflation is expected to receive extra downward pressure over the year ahead as a direct result of the higher
exchange rate, but this effect will be temporary.
"Our current projections of the economy incorporate a further modest reduction in the OCR. Any such further reduction
will be contingent on further evidence that medium term CPI inflation pressures are abating as our projections assume.
We will take our cues from the activity and inflation data as they come to hand," Dr Bollard concluded.
ENDS