Reserve Bank Raises OCR Again

July 29, 2010 New Zealand Finance

golden kiwiThe Reserve Bank of New Zealand has deemed the country’s economic growth strong enough to instate another increase to the national Official Cash Rate.

New Zealand has continued down a path of a relatively healthy economic recovery in recent months, despite a small slowdown in selected growth figures. On July 29th Allan Bollard, Governor of the Reserve Bank, revealed that the current conditions are adequate to warrant a slight withdrawal of stimulus policy and a 25 basis point increase the Official Cash Rate (OCR). The rate will now be 3.0 percent.

New Zealand’s near and medium-term forecasts for GDP growth remain strong, riding the confidence of the manufacturing industry and the forestry sector’s resilient growth. Business investment is also expected to pick up over the medium-term, with a great positive impact on national growth. However, the Reserve Bank has revealed that domestic demand is marginally lower than during the previous OCR adjustment, with public spending and household credit showing dampened growth. Additionally, business investment is below previous forecasts.

Despite the handful of decreased growth predictions, Alan Bollard maintains that the latest OCR increase is justified. Even at its adjusted level, the OCR is still very supportive of economic growth, although the pace and extent of future rate movements will need to be reexamined. The Reserve Bank Governor did note that with the new OCR and the Government’s upcoming GST rate increase, national inflation could temporarily climb above 3 percent. However, the effect is expected to be short term, and the Treasury will monitor its effects closely to ascertain the complete economic impact.

Photo by Brenda Anderson

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