OCR unchanged at 6.50 per cent
The Reserve Bank has left the OCR unchanged at 6.50 per cent.
Speaking at the release of the Reserve Bank's December 2004 Monetary Policy Statement, Reserve Bank Governor Alan
Bollard said "As indicated in our October Review, we continue to expect that the current policy position will achieve
inflation between 1 and 3 per cent on average over the medium term. This outlook assumes that significant pipeline
effects from past interest and exchange rate increases will eventuate and act to further constrain the economy over the
period ahead.
"Since the last review, overall economic indicators have continued to surprise on the upside. As a result, we have
revised upwards our GDP estimates for the second half of 2004 and pushed out our expected timing of the economic
slowdown. But the slowdown is still expected in 2005. The easing in house sales, residential building consents and net
immigration remain in line with our earlier projections. Reinforcing this outlook is a weakening exports picture, based
on softer world growth and the constraining effects of the strong NZ dollar.
"Inflation is projected to rise close to 3 per cent before easing back later in 2006. The risks to the inflation outlook
are two-sided. On the upside there is clearly a risk that the current momentum in household demand will hold up longer
than expected. Rising wage and salary pressures also present an upside inflation risk given the current labour market
tightness. On the downside there is the possibility of more exaggerated movements in the US dollar and US interest
rates, leading to a stronger New Zealand TWI, weaker exports and less inflation pressure.
"The tightening in monetary policy over the past year currently looks sufficient to keep medium term inflation
pressures in check. However, with inflation expected to remain toward the top of the 1 to 3 per cent target band over
the medium term, there is little headroom to absorb stronger than expected inflation pressures. If such pressures
emerge, a further policy tightening cannot be ruled out. Further, the current outlook offers little scope for an easing
in policy in the foreseeable future. We will continue to assess inflation pressures carefully as the economic data come
to hand."