Reserve Bank raises official cash rate (OCR) to 8.25%

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Reserve Bank Governor Alan Bollard said: "The New Zealand economy is running strong. We are recording continued big increases in international commodity prices, especially dairy, reflecting solid world demand for our products.

Thursday, July 26th 2007, 8:44AM

Reserve Bank Governor Alan Bollard said: "The New Zealand economy is running strong. We are recording continued big increases in international commodity prices, especially dairy, reflecting solid world demand for our products. "This is very good news for New Zealand. Given this positive situation, some of the negative commentary circulating about the economy is unwarranted. "However, the continued tight labour market, high capacity use, and rising oil and food prices all point to sustained inflationary pressures. That is why we are increasing the OCR today. "The New Zealand dollar has reached very high levels recently, driven by US dollar weakness and New Zealanders' heavy demand for borrowing. This level of the currency has been hurting exports. "The high New Zealand dollar is not sustainable medium term and investors should understand this. The higher OCR now gives strong incentives to New Zealanders to save. "New Zealanders have been showing early signs of moderating their borrowing. Provided they keep this up, and the pressure on resources continues to ease, we think the four successive OCR increases we have delivered will be sufficient to contain inflation."

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