OCR Unchanged After Weak Economic Projections

December 10, 2010 New Zealand Finance

10 Kiwi DollarsThe New Zealand Official Cash Rate has remained unchanged after its latest review, primarily due to weakened short-term projections for the country’s economic prospects.

On December 9th the Reserve Bank of New Zealand announced that the country’s Official Cash Rate (OCR) will remain unchanged at 3.0 percent. The OCR has remained at 3 percent since July 29th 2010.

At the OCR announcement Reserve Bank Governor Alan Bollard stated that the interest rate is expected to rise slower than previously projected over the next two years. This decision has been attributed to a slowdown in economic growth, and a weakening in several market indicators. He explained that household spending is weaker than expected, national corporate “investment intentions” are below average and the housing market is more placid than estimated. Alan Bollard added that the New Zealand Dollar has greatly appreciated since the last GDP and inflation estimates were made, altering the country’s perceived economic performance.

It is expected that the OCR will not undergo any significant revision in the short-term, or until New Zealand’s economic recovery becomes more robust and the country’s underlying inflationary pressures show stronger signs of increase.

The Reserve Bank currently projects that New Zealand’s major export partners will experience a significant economic pick-up in the mid-term, pushing up demand for New Zealand export goods. Additionally, the repairs required for the recent Christchurch earthquake disaster are expected to make a significant positive impact to near-term GDP, eventually pushing up the interest rates.

Photo by DMWyllie