7 December 2006
OCR unchanged at 7.25 percent
The Official Cash Rate (OCR) will remain unchanged at 7.25 percent.
Reserve Bank Governor Alan Bollard said: "Medium-term inflation pressures remain persistent. While the short-term
inflation outlook has improved, we are less optimistic about medium-term prospects. Economic activity has been stronger
than expected, given the resilience in domestic demand, and medium-term inflation risks appear weighted to the upside.
"A welcome decline in oil prices has improved the near-term inflation outlook. As foreshadowed in our October OCR
Review, we expect to see a very low December quarter CPI figure. Annual inflation could be as low as 2 percent next
year, which should help to restrain inflation expectations and therefore give some assistance in containing medium-term
"But household spending continues to show surprising resilience. The labour market remains very firm, with continued
strong growth in incomes despite some easing in employment in the third quarter. There has been some improvement in
business and consumer confidence. The housing market appears to have developed new momentum after slowing in the first
half of the year. Houses are now selling as fast as at any time this year.
"Many exporters are feeling pressure from the high exchange rate which, if sustained, could threaten the ongoing
rebalancing of the economy. However, primary exporters are getting significant relief from favourable world commodity
prices, which are now expected to continue for longer as a result of global supply shortages.
"While overall medium-term inflation pressures have increased, the balance of risks also appears to be on the upside.
The housing market could continue to defy predictions of a downturn, and domestic demand could be further boosted by a
fiscal expansion over and above the stimulus that is already allowed for in our projections (based on the Government's
"Looking ahead, our projections and risk assessment suggest that a firmer monetary policy stance could still be required
to maintain downward pressure on inflation in the medium term. Further tightening cannot therefore be ruled out. This
will depend on economic outcomes and in particular the emerging trends in housing and domestic demand indicators. Any
easing of policy must remain some considerable way off."
To view the December 2006 Monetary Policy Statement please follow this link: