Bollard leaves OCR unchanged

Reserve Bank Governor Alan Bollard held the official cash rate at 2.5 percent, as expected, this morning, saying Europe's sovereign debt crisis and the weakness in global financial markets continue to threaten the local recovery.

"There is a real risk that the European sovereign debt crisis could cause a further slowing in global activity, putting downward pressure on New Zealand's commodity export prices,'' Bollard said in a statement. "Given the ongoing global economic and financial risks, it remains prudent to continue to keep the OCR on hold at 2.5 percent for now.''

Since the last monetary policy statement in September, New Zealand's sovereign credit rating has been downgraded by Standard & Poor's and Fitch Ratings due to the size of the country's external debt, although Treasury the Reserve Bank are expecting household savings to improve as people use the record low interest rate to repay debt and improve their personal balance sheets.

Still, a softer than expected 0.4 percent third quarter increase in the consumer price index helped quell fears inflation is creeping into New Zealand's economy, and Bollard said "underlying inflation is settling near 2 percent,'' which gives him room to keep rates lower for longer.

"On domestic conditions alone we think the RBNZ should be lifting rates, and we still expect it to take back part of the emergency cut by year-end,'' HSBC chief economist Paul Bloxham said in a note before the release.

"The clear downside risk to this outlook comes from the global economy and financial developments in Europe in particular.''

 

Add a Comment