Reserve Bank keeps OCR on hold

Reserve Bank governor Alan Bollard held interest rates steady, as expected, and provided no new guidance as to when interest rates might begin to rise.

Thursday, July 26th 2012, 9:50AM

by Jenny Ruth

Bollard held his official cash rate (OCR) unchanged at its 2.5% record low and said the outlook remains consistent with his June monetary policy statement. There was minimal reaction in financial markets.

"The Reserve Bank's outlook is broadly unchanged. They expect the recovery to be modest and the rebuilding activity in Christchurch will underpin the recovery," says Christina Leung, an economist at ASB Bank.

Doug Steel at Bank of New Zealand says some economic numbers since the June statement have been a little stronger and some a little weaker than the central bank expected but, overall, the economy is developing as expected.

"All in all, it's all about watching Europe," Steel says.

Bollard said there's "a limited risk" that conditions in the euro area might deteriorate very significantly.

Darren Gibbs at Deutsche Bank says the central bank is clearly monitoring offshore events. "In that sense, they're open to a change of view if something changes significantly in Europe."

Domestically, other negatives are tight fiscal policy and the high exchange rate but, on the positive side, the housing market is doing OK and construction is picking up, Gibbs says.

As for when rates might rise, all Bollard said was that it remains "appropriate for the OCR to be held at 2.5%."

Gibbs says the June statement indicated the first tightening would be in the middle of next year.

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