International Risk Keeps OCR Down

September 15, 2011 New Zealand Taxation

new Zealand OCRNew Zealand’s Official Cash Rate has remained unchanged, due mainly to deteriorating economic outlooks overseas.

In line with the expectations of most economists, the Reserve Bank Governor Alan Bollard announced on September 15th that the New Zealand Official Cash Rate (OCR) will remain unchanged at 2.5 percent.

The Governor said that while New Zealand’s local economic performance was better than forecast over the last quarter, international economic factors meant that the OCR should not be increased at this point in time.

Since the June revision of the OCR prices for New Zealand’s export commodities has remained high, buoying the national economy. Additionally, the rebuilding efforts following the earthquakes in Christchurch are boosting internal consumer demand. However, this healthy economic activity is leading to excessive appreciation of the New Zealand Dollar.

Alan Bollard noted that the New Zealand consumer price index was above the 3 percent maximum target, but attributed the rate largely to the effects of last year’s GST increase. He said that underlying inflation is currently at approximately 2 percent.

While the country maintains a healthy economic outlook, New Zealand’s key economic partners show indication of unsteadiness, adding risk to our forecasts. The Governor attributed the pessimistic outlook to the growing concerns over sovereign debt crisis across Europe, and the international bank funding market. If any sharp slowdown were to occur internationally, New Zealand could see a sharp rise in its borrowing costs, and a drop in demand for its export products.

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