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FULL RBNZ SPEECH: OCR unchanged at 2.5%

The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.5%.

Thursday, January 28th 2010, 9:01AM

Reserve Bank Governor Alan Bollard said:  "The outlook for the New Zealand economy remains consistent with the projections underlying the December Monetary Policy Statement.

"Global activity continues to recover, helping push New Zealand's export commodity prices higher. Economic growth is most apparent in China, Australia, and emerging Asia. However, sustained growth throughout our trading partners is not assured, with many still facing impaired financial sectors and overall activity still reliant on policy support.

"Similarly, the New Zealand economy continues to recover. Policy stimulus and improving export earnings have seen a pickup in household spending. That said, households remain cautious, with credit growth subdued.  Business spending remains weak.

"Annual CPI inflation is currently at the centre of the target band, and is expected to track comfortably within the band over the medium term.

"The economy is being assisted by both monetary and fiscal policy support. As growth becomes self sustaining, fiscal consolidation would help reduce the work that monetary policy might otherwise need to do.

"If the economy continues to recover in line with our December projections, we would expect to begin removing policy stimulus around the middle of 2010."

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Earthquake to rattle rates

 

The effect of the Christchurch earthquake has even rattled mortgage rates heralding a turning point to the current trend of a flattening yield curve with floating and short-term rates increasing and long-term fixed rates falling.

Expect from here on to see the graph in front of you flipped, as economists expect the yield curve to steepen. The reason for this is that the 7.1 magnitude earthquake that hit Canterbury and the collapse of South Canterbury Finance last week has eliminated any remaining chance of a September Official Cash Rate (OCR) hike according to economists. Most are now not expecting monetary policy tightening until 2011.

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