Official Cash Rate unchanged at 2.25 percent
Statement by Reserve Bank Governor Graeme Wheeler:
The Reserve Bank today left the Official Cash Rate unchanged at 2.25 percent.
Global financial market volatility has abated and the outlook for global growth appears to have stabilised after being
revised down successively over recent quarters. There has been a modest recovery in commodity prices in recent months.
However, the global economy remains weak despite very stimulatory monetary policy and significant downside risks remain.
Domestic activity continues to be supported by strong net immigration, construction, tourism and accommodative monetary
policy. The dairy sector remains a moderating influence with export prices below break-even levels for most farmers.
The exchange rate is higher than appropriate given New Zealand’s low export commodity prices. Together with weak
overseas inflation, this is holding down tradables inflation. A lower New Zealand dollar would raise tradables inflation
and assist the tradables sector.
House price inflation in Auckland and other regions is adding to financial stability concerns. Auckland house prices in
particular are at very high levels, and additional housing supply is needed.
There continue to be many uncertainties around the outlook. Internationally, these relate to the prospects for global
growth and commodity prices, the outlook for global financial markets, and political risks. Domestically, the main
uncertainties relate to inflation expectations, the possibility of continued high net immigration, and pressures in the
housing market.
Headline inflation is low, mostly due to low fuel and other import prices. Long-term inflation expectations are
well-anchored at 2 percent. After falling in recent quarters, short-term inflation expectations appear to have
stabilised.
We expect inflation to strengthen reflecting the accommodative stance of monetary policy, increases in fuel and other
commodity prices, an expected depreciation in the New Zealand dollar and some increase in capacity pressures.
Monetary policy will continue to be accommodative. Further policy easing may be required to ensure that future average
inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic
data.
View the Monetary Policy Statement: http://www.rbnz.govt.nz/monetary-policy/monetary-policy-statement
Watch the Monetary Policy Statement press conference live-stream at NZT 11am: http://www.rbnz.govt.nz/research-and-publications/webcasts
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