The Official Cash Rate of New Zealand will remain unchanged, as national and international economic conditions do not yet justify an increase.

On January 26th the Governor of the Reserve Bank Alan Bollard announced that the Official Cash Rate (OCR) of New Zealand will be maintained at 2.5 percent.

Allan Bollard explained that since December, financial stability around the world has seen a slight improvement, but was still too fragile to justify raising the OCR. He added that given the moderate pace of the international market and the subdued domestic consumer demand levels, it remains prudent to maintain the OCR at the currently low level.

While detailing the national economic situation, the Governor noted that the New Zealand economy has seen some pick up over the last few months, and inflation has remained low, but an appreciation of the New Zealand dollar is undermining earnings from the export sector. He also indicated that although the OCR was not raised, consumers might still see an hike to retail interest rates, due to increasing costs of international funding and continued periods of economic uncertainty surrounding the Euro debt crisis.

The Reserve Bank’s decision did not come as a surprise to economists in New Zealand or overseas. Prior to the announcement, experts had come to a near unanimous decision that the OCR would not be changed, and is not likely to see any increase or decrease until late 2012 or even January 2013.

The OCR has remained unchanged through 7 rate reviews since it was lowered from 3 percent on March 10th 2011.

Photo by patrick h. lauke