RBNZ hikes OCR as expected
The Reserve Bank today increased the Official Cash Rate from 5.5% to 5.75%.
Thursday, June 10th 2004, 9:01AM
"There remain compelling reasons to expect that momentum in the economy will slow. However, improvements in global demand, rising commodity export prices, and the recent fall in the exchange rate to a less contractionary level point to stronger activity than we projected in March.
"Moving interest rates higher is thus appropriate to ensure that medium-term inflation remains within the target range. At this stage, further increases in interest rates look likely to be needed over the year ahead, but to a modest degree by historical standards.
"Although we expect medium-term inflation to remain consistent with the target range, the recent decline in the exchange rate and higher oil prices mean that we are now projecting annual inflation to rise temporarily above 3% in 2005. This would not be a breach of the Policy Targets Agreement, as the Bank is now required to keep inflation between 1 and 3% "on average over the medium term". Given that inflation is expected to fall in a reasonable time frame, it would not be appropriate to attempt to offset this short-term increase in inflation using monetary policy.
However, we will need to remain alert to signs of more enduring effects that could arise if wage or price setting behaviour starts to change. Were that the case, additional monetary policy pressure might be required to keep medium-term inflation pressures in check.
"We will continue to update our view of inflation pressures and the policy outlook, as new data come to hand."
This is the official release from the Reserve Bank - story to follow
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