KEY POINTS:
The Reserve Bank has a "successful" record in fighting inflation despite the average rate for the last three years nudging the upper end of its target band, Governor Alan Bollard said in the bank's annual report released yesterday.
The bank's Policy Targets Agreement requires it "to keep future Consumers Price Index (CPI) inflation outcomes between 1 per cent and 3 per cent on average over the medium term".
Since the current monetary policy's inception in 1989, it had "successfully delivered average inflation of around 2.5 per cent," said Bollard.
BNZ head of research Stephen Toplis was "somewhat bemused" by the comment. "If you've got a 1 to 3 per cent inflation band and you are desperately trying to anchor inflation expectations at a low level, to describe average inflation of 2.5 per cent - which is towards the top end of that band - as being successful, is probably not delivering the right message.
"It also fails to recognise that if you break that average down into the tenure of the current leadership of the bank compared to its predecessors, that the average is moving upward."
Nevertheless, the Reserve Bank's board indicated it was satisfied with Bollard and his staff's inflation-fighting record, noting that over the last three years the CPI had averaged 2.9 per cent per annum, "towards the top, but within, the target band".
Sustained strength in household consumption, high house price inflation, negative household savings rates, rising oil prices, fiscal policy and migration issues and low productivity growth had all complicated the issue.
Meanwhile, as at the end of June the bank reported an unrealised loss on its currency intervention activities of $11.57 million which had since turned to an unrealised profit.
However, the dollar's rebound from its July lows has likely eroded much of the gains.
The bank generated an overall surplus of $332.9 million in the June year, and will pay a $193 million dividend to the Government.
