OCR Remains Unchanged (6th Dec 2012)
The Reserve Bank has left the OCR unchanged at 2.5%. New Governor Graeme Wheeler said: "Economic growth has slowed in recent months and has been accompanied by low inflation and rising unemployment. However, over the next two years, growth is expected to accelerate to between 2.5 and 3% per annum. The global outlook remains soft but appears less threatening than was the case earlier in the year. The risk of severe near-term deterioration in the euro area has decreased and Chinese economic indicators have been more positive recently. However, uncertainty around the US fiscal position is constraining US growth.
"Repairs and construction in Canterbury continue to gather pace, and the housing market is strengthening, particularly in Auckland. Lower funding costs for New Zealand banks, along with increased competition for lending, have seen mortgage interest rates reduce".
Mr Wheeler described dampening factors including the Government's fiscal consolidation and continued cautiousness by households and businesses in their spending decisions. Also the high NZ dollar continues to restrict export earnings and encourage demand for imports.
"The overall outlook is for stronger domestic demand and the elimination of current excess capacity by the end of next year. This is expected to cause inflation to rise gradually towards the 2% target midpoint. On balance, it remains appropriate for the OCR to be held at 2.5%".