OCR unchanged at 5.75 per cent

The Reserve Bank today left the Official Cash Rate unchanged at 5.75 per cent.

Governor Alan Bollard said “A key development since November has been a further sharp rise in the New Zealand dollar against all major currencies. If sustained, we expect the higher exchange rate to dampen future economic activity and, hence, medium-term inflation pressures.

“However, current domestic economic activity appears to be more robust than we anticipated, as reflected in indicators of household spending and construction sector activity. The latest estimates suggest that domestic inflationary pressure has continued, offsetting a fall in imported inflation. As expected, overall CPI inflation has remained towards the upper end of the 1 to 3 per cent target band for inflation on average over the medium term.

“For the moment, it is appropriate to leave the OCR unchanged, reflecting the strong growth in the New Zealand economy. However, the balance of risks around the future path of interest rates has shifted. If the exchange rate remains at around present levels or appreciates further, and if the evidence points to reduced pressures on resources and medium-term inflation, then there may be scope for a cut in the OCR later in the year,” Dr Bollard concluded.

The next OCR announcement comes with the release of the Monetary Policy Statement on 6 March 2003.

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