OCR unchanged at 2.5 percent

10 September 2009 9:00am

OCR unchanged at 2.5 percent

The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.5 percent.

Reserve Bank Governor Alan Bollard said: "There is more evidence that the decline in economic activity is coming to an end, and that a patchy recovery is underway.

"This is partly due to recovery in our trading partner economies in the June quarter and these look likely to continue expanding in the short term. Domestically, retail spending appears to have stopped falling, following a rise in net immigration and a pick-up in the housing market over recent months.

"However, the medium-term growth outlook remains weak. We expect household spending to grow only modestly given weak income growth and a reduced appetite to take on debt. Business profits are under pressure because of the low level of activity and the elevated New Zealand dollar; this limits the scope for employment and investment to rebound quickly.

"For growth to be sustained in the medium term there is a need for improved competitiveness in the export sector and a continued recovery of household savings. This rebalancing is required to stabilise New Zealand's external payments position. If the exchange rate were to continue its recent appreciation and/or the recovery in house prices were to undermine the improvement in household savings, then the sustainability of the present recovery will be brought into question.

"Annual CPI inflation is currently well within the target band and is expected to track comfortably within the band over the medium term.

"As we have said previously, the forecast recovery in economic activity is based on monetary policy continuing to provide substantial support to the economy. We expect such support will be needed for some time. As a result, we continue to expect to keep the OCR at or below the current level through until the latter part of 2010."

The news release is available on the website: http://www.rbnz.govt.nz/news/2009/3745217.html

ENDS

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