THE OFFICIAL CASH RATE - 3PC
The Official Cash Rate has this morning been left on hold by the Reserve Bank at 3 per cent.
Such a hold was widely expected, with market economists all but unanimous that Reserve Bank Governor Bollard will not raise the official cash rate again until March next year.
The average expectation among 11 forecasters polled by Reuters is that he will have raised it 100 basis points, to 4 per cent, by this time next year.
In an announcement just released, Reserve Bank Governor Alan Bollard says that "Despite some data turning out weaker than projected, the medium-term outlook for the New Zealand economy remains broadly in line with that assumed at the time of the September Monetary Policy Statement."
"Downside risks to the outlook for global growth continue, with high public and private debt inhibiting recovery in many developed economies. Moreover, it is unclear how further policy support would impact on the outlook for growth in our Western trading partners. Offsetting this weakness, strong growth continues in China, Australia and emerging Asia."
"Domestically, recent data has turned out weaker than projected. Continued household caution has seen consumer spending and housing market activity remain muted, and many firms have become less optimistic about their future prospects. However, continued high export prices, along with reconstruction and repairs in Canterbury, will support activity over the coming year.
"Overall, continued GDP growth is expected to gradually absorb current surplus capacity over the next few years. Headline inflation is expected to move higher following the recent increase in the rate of GST. The subdued state of domestic demand suggests this inflation spike will have limited impact on medium-term inflation expectations.
"While it is appropriate to keep the OCR on hold today, it remains likely that further removal of monetary policy support will be required at some stage."
ANZ economist Khoon Goh said the Reserve Bank clearly had time on its side to assess developments in the economy.
"Economic momentum is weaker than projected, though still fits within the spirit of their September forecasts. Sentiment towards the global economy has shifted from "slowing" in September to "downside risks".
Beyond such semantics the real message appeared to be one of 'business as usual' and 'waiting patiently on the sidelines' he said.
Despite the circumspect tone of the announcement, the bias from the Reserve Bank was still for the removal of monetary support over time, Goldman Sachs JBWere economist Philip Borkin said.
"We feel this will not be until quarter one 2011, but like the RBNZ need to see evidence that the domestic economy is still building momentum."
"We have taken some tentative encouragement from the latest NBNZ business confidence surveys, although now need to see this in the hard data," he said.
See a history of the OCR here
See the Reserve Bank statement here.
-NZ HERALD
