Reserve Bank Maintains 2.5% OCR

April 26, 2012 New Zealand Taxation

New Zealand OCRDue to the country’s positive economic performance and acceptable levels of inflation, the Official Cash Rate in New Zealand will not be changed this month.

On April 26th the governor of the Reserve Bank of New Zealand Allan Bollard announced the results of the latest review of the Official Cash Rate (OCR), saying that the Bank has not found enough economic evidence to justify changing the rate, and the rate will be maintained at the level of 2.5 percent. The OCR has not been altered throughout the nine reviews already held since the rate was dropped to 2.5 percent in March 10th 2011.

Explaining the decision, Allan Bollard said that the Reserve Bank deems the current level of inflation in New Zealand to be economically acceptable and the growth of inflation is still within the Bank’s own target range.

The governor summarised the country’s current economic performance, saying that the domestic economy is showing signs of further growth. He also said that the Bank is seeing a pick up in the country’s housing market, which was forecasted earlier this year. The building construction sector is expected to pick up later in the year, as a greater number of rebuilding projects are launched in Christchurch.

Despite the generally positive economic situation in New Zealand, the governor said that the global economic outlook “remains of concern” because “…near-term indicators have moderated and financial market sentiment is still fragile.”

Commenting on the possibility of changing the OCR in 2012, the governor explained that if the New Zealand dollar maintains its currently high price and no major movements are seen across the other economic indicators, the Bank will need to “reassess the outlook for monetary policy settings.”

Economic experts are already predicting that the OCR will be altered near the end of the year in order to deal with the high value of the New Zealand dollar. According to AMP Capital Investors, the Reserve Bank will hike the OCR at the end of 2012 and continue to raise the rates throughout the next year before dropping the cash rate to below the current level of 2.5 percent.

Photo by patrick h. lauke