OCR unchanged and likely to stay that way for some time

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The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.50%.

Thursday, April 28th 2011, 9:03AM

Reserve Bank Governor Alan Bollard said: "The outlook for the New Zealand economy remains very uncertain following February's Christchurch earthquake.

"As was expected, business confidence, consumer spending and tourism activity all declined sharply following the earthquake. The OCR was cut as insurance to help limit these adverse effects. Confidence and consumer spending have since shown signs of recovery, but many firms and households remain adversely affected in Christchurch. To date, activity in the rest of the country appears relatively unaffected, with housing market turnover and business investment beginning to increase.

"Trading partner growth remains robust, helping push New Zealand's export commodity prices higher. Along with relatively favourable climatic conditions, the improved price outlook is supporting a pickup in on-farm investment. Higher oil prices and the elevated level of the New Zealand dollar are both unwelcome. They will have some dampening effect on economic activity.

"Headline inflation is currently being boosted by recent increases in indirect taxes. Annual inflation is expected to settle comfortably within the target band once these tax increases drop out of the annual rate.

"Given the outlook for core inflation and continued economic disruption stemming from the earthquakes, the current level of the OCR is likely to remain appropriate for some time."

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