Economy Does Not Warrant OCR Change

April 29, 2011 New Zealand Finance

New Zealand OCRAccording to the Reserve Bank of New Zealand, following the Christchurch earthquake and in the face of an overvalued currency and rising oil prices, New Zealand remains in a precarious economic position.

During the latest Official Cash Rate (OCR) review on April 28th, the Reserve Bank noted that following the recent natural disaster in Christchurch consumer spending in New Zealand and inbound international tourism took a deep dive. The OCR was cut down to 2.5 percent in response, as a means of buffering against the negative effects. To date, there have not been enough signs of strong recovery to warrant an increase to the OCR, leaving at the 2.5 percent level.
During the media conference announcing that no changes will be carried out to the OCR, Reserve Bank Governor Alan Bollard, suggested that the economy could see a pick up soon, with national business investment and housing market turnover showing signs increase. He added that New Zealand’s key trading partners are undergoing robust growth, improving out export commodities marker. Positive weather conditions are also likely to spur agricultural investment in New Zealand. Despite the positives, the economy is still being dampened by the increasing value of the dollar and the price of oil. Headline inflation rates are also up due to recent changes in GST rates.

When asked about the future prospects of the OCR level, the Bank Governor said, “…given the outlook for core inflation and continued economic disruption stemming from the earthquakes, the current level of the OCR is likely to remain appropriate for some time.”

Photo by Pauli Antero