On December 8th the reserve Bank Governor Alan Bollard the quarterly Monetary Policy Statement, saying that the New Zealand Official Cash rate (OCR) will remain unchanged at 2.5 percent for another four months. The OCR has not been changed since it was dropped by 0.5 percent on March 10th 2011.

The Governor explained that the September OCR Statement had suggested that the OCR would remain at 2.5 percent unless a dramatic improvement was seen in the economic conditions around the world. He stated that there was no evidence of any strong economic pick up, and market conditions around the world were softening. The Governor added that the world was seeing an “…unusual degree of uncertainty around global conditions.”

Allan Bollard pushed back the prospect of future OCR hikes, saying that there was currently too much market uncertainty and economic variables to predict when the OCR may be raised again.

Prior to the OCR announcement national economic experts and banks were expecting the rate to be hiked to 3 percent, with the price of the New Zealand dollar reflecting the expectation.

Some economist have already come forward and suggested that the latest OCR announcement indicates that the rate may be cut in 2012, if global economic conditions do not improve dramatically.

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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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New Zealand is looking to be set on the road to financial recovery and sustained economic growth following the recent Christchurch earthquake, but the growth does not yet warrant an increase to the national Official Cash Rate (OCR). On June 9th the reserve bank of New Zealand announced the outcome of the latest OCR review, saying that the rate will remain unchanged, at the current rate of 2.5 percent.

During the OCR announcement Reserve Bank Governor Allan Bollard said that the outlook for New Zealand’s economy had “improved since the publication of the March Statement”, but economic indicators suggested that a further increase in production could still be expected over the next two years.

The Governor noted that the New Zealand dollar had appreciated significantly recently, and the movements were putting extra pressure on some sectors of the economy. He went on to say that the high level of the dollar is currently placing some constraints on necessary rebalances in the economy, meaning that any upward revisions to the OCR would need to be delayed until the dollar weakens.

The OCR is expected to be gradually increased over the next two years, as the New Zealand economy strengthens. However, the Reserve Bank will pace any raises to the speed of economic growth, so as not to cause any misbalance. Allan Bollard said that at the moment export earnings are being held back by the value of the dollar, and household expenditures are constrained, and any premature upward revisions of the OCR will only serve to further dampen both of these activities.

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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.”

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On June 10th the Reserve bank of New Zealand (RBNZ) announced the first change in New Zealand’s OCR since April 30th 2009. At the latest OCR review, the rate was increased by 0.25 percent to a new level of 2.75 percent. The rate has remained unchanged for the last 8 OCR review sessions.

Alan Bollard, Governor of the RBNZ, explained the change, saying, “…the economy has entered its second year of recovery with growth becoming more broad-based.” The alteration has also been attributed to the strong recovery of the New Zealand’s key economic trading partners, especially the Asia region, Australia, and the US. Local economists expect several more upwards adjustments throughout the 2010 year, barring an unexpected downturn in the global financial situation. The Governor added that the OCR will be reviewed and adjusted in line with the withdrawal of Government stimulus measures, as dictated by the economic environment.

According to Alan Bollard, economic growth is expected to reach 3.5 percent throughout the 2010 and 2011 years. The growth is attributed to an improved demand for export goods, a rising labor market, along with residential and business investment.

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On March 1st, the NZIER released the March 2010 Quarterly Predictions report, which stated that although New Zealand is no longer facing a recession, its economic recovery will be slow and “jagged”. Growth of only 2.7 percent was projected for the 2010 calendar year, and 1.4 percent for 2011. Shamubeel Eaqub, NZIER Principal Economist, stated that several key economic indicators, both internationally and locally, are giving cause for concern and calling for restraint on any recovery estimates.

According to the report, the New Zealand Reserve Bank does not yet have any reason to raise the Official Cash Rate (OCR) yet, though the move should be considered in September. Unemployment in 2010 will peak at 7.5 percent, compared to 7.3 percent in December 2009. Further, constraints in wages will be seen for another 12-24 months. Household spending is projected to experience a slow recovery. The report also claimed that the housing sector will experience slow growth, and be hampered by rising mortgage rates.

Shamubeel Eaqub admitted to a certain amount of uncertainty in regards to any economic projections made, as there are renewed signs of flagging consumer confidence both within New Zealand and internationally. Additionally, yet to be announced tax regime changes lend a level of unpredictability to the growth and recovery possibilities of New Zealand.

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At the quarterly Reserve Bank OCR Review, on January 28th, it was announced that the rate would remain at its current level of 2.5 percent. Alan Bollard, Reserve Bank Governor, said that the decision comes as a result of the economy remaining consistent with projections made in the December Monetary Policy Statement. He continued on to say that the annual CPI inflation is situated squarely in the target band and is expected to remain within the area over the medium term.

The New Zealand OCR has remained at 2.5 percent since April 30th, 2009. It has been unchanged through six OCR review announcements. Economists predict that the rate will be raised in mid-2010 if evidence surfaces regarding the sustainability of New Zealand’s current economic recovery.

Expanding on his decision, Alan Bollard explained that rising economic conditions across the world are driving the price of New Zealand commodities higher, aiding in the country’s recovery. Though the Governor expressed concern regarding the ability of Australia and Asian nations to maintain their economic upturns. Further, he claimed that the New Zealand Government’s fiscal and monetary stimulus policies have aided the country’s recover, but could be withdrawn in mid-2010, as the need for them declines.

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On the 29th of October it was revealed that the Reserve Bank of New Zealand has decided to maintain the New Zealand OCR at 2.5%. The review was the fourth which had led to an unchanged OCR, the last alteration being on the 12th of March 2009.

According to Alan Bollard, Reserve Bank Governor, there seemed to be no reason to withdraw the monetary policy stimulus. Further, New Zealand’s inflation is currently on par with the Reserve Bank’s 1-3% inflation aim. Although it was stated by the Reserve Bank Governor that the current level of the New Zealand dollar is hindering the countries recovery. He said “The high level of the New Zealand dollar has limited the scope for exports to contribute to the recovery and reinforces a bias toward domestic expenditure,” Bollard said. “The current composition of growth continues to raise questions about its sustainability. These concerns would intensify if credit growth began to propel stronger domestic demand.”

For the second review in a row Reserve Bank Governor Alan Bollard has opted not to increase the Official Cash Rate (OCR) of New Zealand. The change came as no big surprise to commentators or market participants, with no movements of particular note to be seen on the foreign exchange or equity market.

In regards to the decision, Alan Bollard, in a Reserve Bank release said “Despite signs of a leveling off in economic activity, the economy remains weak. We continue to expect to see a patchy recovery get underway toward the end of the year, but it will be some time before growth returns to healthy levels.” He went onto say that while most factors seemed to be close to the June Monetary Policy Statement estimates, the level of the New Zealand dollar was cause for some concern at the current time.

The Reserve Bank has taken an expected move and once again cut the New Zealand OCR by 50 basis points, bringing it to 3%, from its previous position of 3.5%.

At first glance, the move is a relatively small one, especially since it has been preceded by numerous previous cuts, many of a much greater magnitude. The smaller cuts were driven by the Reserve Bank’s relatively positive future outlook for the New Zealand economy.

It seems that many economists were counting on a higher cut, the level of the New Zealand dollar reflects the fact that a higher cut was expected. Before the announcement, the New Zealand dollar was trading at US 0.5080c, post announcement it was at US 0.5120c. This could also be attributed to the unexpectedly optimistic speech and predictions for the economy made by Alan Bollard during he cut announcement.

At the moment, initial economic predictions for the April and June OCR revisions will be at 25 basis points each, unless the economic situation changes heavily.