OCR on hold at 0.25 pc - Reserve Bank still prepared to cut if required

Reserve Bank Governor Adrian Orr. Photo / Mark Mitchell

The Reserve Bank has left the official cash rate on hold at 0.25 per cent and said it is still prepared to go lower if required.

In a Monetary Policy Review today Reserve Bank Governor Adrian Orr said the global economic outlook had continued to improve since February.

"However, economic uncertainty remains elevated and divergences in economic growth both within and between countries are significant," he said.

New Zealand's commodity export prices continued to benefit from robust global demand.

But he noted "economic activity in New Zealand slowed over the summer months following the earlier rebound in domestic spending."

"Short-term data continues to be highly variable as a result of the economic impacts of Covid-19."

There was no immediate currency reaction. Markets had expected the OCR to be unchanged.

Last month, the New Zealand dollar weakened in reaction to the Government's announcements on housing, which have been seen in the market as taking the pressure off the Reserve Bank to act on an over-heated property market.

Most economists expect to see the OCR stay on hold until at least the middle of 2022 as the Bank looks through short-term inflation risk driven by supply restrictions caused by the pandemic.

The Monetary Policy Committee said it was prepared to maintain "current stimulatory monetary settings" until it was confident that consumer price inflation would be sustained at the 2 per cent per annum target midpoint, and that employment was at or above its maximum sustainable level.

"Meeting these requirements will necessitate considerable time and patience," it said.

The Committee agreed that it was prepared to lower the OCR if required.

The Large Scale Asset Purchase programme (buying up to $100b of government bonds) was also left unchanged.