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No change to OCR

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

Thursday, July 26th 2012, 9:06AM

Reserve Bank Governor Alan Bollard said: “New Zealand’s economic outlook remains consistent with that described in the June Monetary Policy Statement.

“New Zealand’s trading partner outlook remains poor, with several euro-area economies in recession.  There remains a limited risk that conditions in the euro area deteriorate very significantly.  The Bank continues to monitor the situation carefully given the potential for rapid change.

“Domestically, the Bank continues to expect economic activity to grow modestly over the next few years.  Housing market activity continues to increase as forecast, and repairs and reconstruction in Canterbury are expected to further boost the construction sector.  Offsetting this, fiscal consolidation and the exchange rate are constraining demand growth.

“Underlying annual inflation, which recently moved below 2%, is expected to settle near the mid-point of the target range over the medium term.

“It remains appropriate for the OCR to be held at 2.50%.”

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The OCR ain't going anywhere

The new Reserve Bank governor, Graeme Wheeler, predicts that the official cash rate won't by going anywhere until 2014.

This is clear from the 90-day bank bill forecast graph in the December Monetary Policy Statement. It shows clearly how over the past year forecast increases kept getting pushed down each quarter.

A year ago the bank was predicting the 90-day bill rate would be up at 4.00% by March 2014. That forecast was wound back to 3.3% in March, 3.2% three months later and is now down at 2.8%.

The good news for borrowers is that, asssuming things pan out as forecast, then home loan rates aren't likely to be going up any time soon either.

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