Brian Fallow : A more cheerful tone from Reserve Bank

Reserve Bank govenor Alan Bollard. Photo / Mark Mitchell

Understandably there is a more cheerful tone to this morning's statement from the Reserve Bank than in the last one, which was so soon after the February earthquake.

An official cash rate of 2.5 per cent is "likely to remain appropriate for some time", governor Alan Bollard said.

Inflation is expected to settle "comfortably" within the bank's target band of 1 to 3 per cent once GST and other tax increases drop out of the annual rate.

As the markets try to divine how long "some time" is, the nuances of the statement are relatively upbeat.

While many firms and households in Christchurch have been adversely affected, activity in the rest of the country appears relatively unaffected, he said. Housing market turnover and business investment are beginning to increase.

The references to the international front are mixed: the boost from higher export commodity prices and relatively favourable growing conditions is acknowledged, but higher oil prices and the high dollar are "unwelcome" and will dampen activity.

This morning's statement drops the previous one's acknowldgement that the second half of 2010 had proven much weaker than the bank - and, to be fair, other forecasters - had expected.

The statement has also dropped March's reference to the start of rebuilding in Christchurch as a trigger for raising the OCR.

In light of the other sunbeams in the statement, that might be taken as a signal that it will be sooner.