OCR reduced to 8.0 percent
Date 24 July 2008
The Reserve Bank today reduced the Official Cash Rate (OCR) from 8.25 percent to 8.0 percent.
Reserve Bank Governor Alan Bollard commented that “more unpleasant international news has emerged since the June
Monetary Policy Statement, and there is a risk that the domestic economy will slow further. Moreover, the cost of funds
raised abroad by banks has been rising in recent months as the international financial situation has deteriorated.
Today’s cut will help to mitigate the effect of these increases on the actual borrowing costs paid by firms and
households.
“Recent oil and food price increases mean that annual CPI inflation should peak around 5 percent in the September
quarter of this year. However, we expect that inflation will return inside the target band in the medium term. The
weaker economy is expected to reduce pressure on resources, making it more difficult for firms to pass on costs and for
higher wage claims to be agreed.
“Economic activity is likely to remain weak over the remainder of 2008. The ongoing correction in the housing market,
together with the very high oil prices, will limit household spending and constrain the extent of recovery. However,
high export prices and an expansionary fiscal policy are expected to contribute to a gradual pickup in activity through
2009.
“Consistent with the Policy Targets Agreement, the Bank’s focus will remain on medium-term inflation. In this regard, it
is important to note that monetary policy has been reasonably tight for some time, and is now restraining activity and
medium-term inflation pressures. Provided that the outlook for inflation continues to improve and there is no excessive
exchange rate depreciation, we would expect to lower the OCR further.”
ENDS