He said pressures on resources looked likely to be maintained in the foreseeable future.
"New Zealand's population is expanding rapidly with the sharp turnaround in net migration. Migration is contributing more to strong household spending, residential construction and housing market activity than it is to the availability of labour.
"And a recovery in global demand - although fragile in some respects - is now underway with Consensus Forecasts rather more optimistic than earlier in the year."
The influences on inflation were not all operating in the same direction, Mr Carr said. The exchange rate had been rising and international prices for some key exports, such as dairy products, had fallen sharply. These factors, if sustained, would reduce domestic activity to some degree and help to dampen inflation pressures in due course.
"On-balance, in the absence of some further withdrawal of monetary stimulus, these factors together would place additional pressure on the economy's already-stretched resources, producing a rise in inflation pressures. Accordingly, today's decision is a further step in the process of reducing the interest rate stimulus that we put in place last year, when the outlook for the economy looked decidedly weaker.
"At this point, it appears likely that further increases in interest rates will be required over the year ahead, possibly to a greater extent than we projected in March. However, as discussed further in this Statement, the outlook is always subject to uncertainty. We will continue to monitor the range of influences on the inflation outlook and make the necessary policy adjustments."
RBNZ Monetary Policy Statement - May 2002
