Our economics editor analyses today's OCR announcement
KEY POINTS:
While governor Alan Bollard's decision to leave the official cash rate unchanged at 8.25 per cent will surprise no-one, the accompanying statement takes a couple of unexpected swipes at the Government.
He has fired a warning shot across its bows over prospect of election-year Budget largesse, albeit in the measured language of a central bank: "Any further easing in fiscal policy beyond that already announced will add further upside risks to medium-term inflation."
What is surprising is that he feels the need to make this point, which is scarcely new, again. Perhaps the sheer size of the Government's recently reported operating and cash surpluses startled even him.
His statement also adds the planned emissions trading scheme to the list of other upside risks to inflation. This is odd because such a scheme has been on the cards since December 2005 when the proposed carbon tax, which in any case would have had similar effects on energy prices, was scrapped. Why highlight it now?
The rest of the statement is as market economists expected.
He ignores the most recent inflation reading of 1.8 per cent but stresses instead that core inflationary pressures persist, as incomes benefit from a tight labour market and strong export commodity prices.
On the other side of the ledger there are signs that the housing market - long an inflationary hotspot - is moderating and "considerable uncertainty" remains about the fallout form turbulence in global financial markets.
