17 March 1999

4.5 per cent

The Reserve Bank today set the first Official Cash Rate (OCR) at 4.5 per cent.

This came with the release of the March 1999 Monetary Policy Statement.

Reserve Bank Governor Don Brash today said: "The domestic economy is now recovering relatively robustly. However, it will be some time before slack built up in the economy over the last year or so has been used up, so downward pressure on inflation will continue for a while yet.

"For this reason, monetary policy can continue to encourage the recovery, and today's OCR is intended to be broadly consistent with current relatively easy monetary conditions. As well, we do not see any need for a material change in the stance of policy for some quarters ahead.

"There are some important risks. Inflationary pressures could turn out to be stronger if households respond to low interest rates by spending even faster than predicted, largely by taking on more debt.

"On the other hand, a marked slow down in the US economy - perhaps triggered by a fall in US share prices - or further difficulties in Japan would reduce inflation pressures.

"As required by the Policy Targets Agreement, the Reserve Bank will adjust monetary policy with the aim of keeping CPIX inflation above zero and below 3 per cent. The next OCR review will take place on 21 April," Dr Brash concluded.

For further information contact
Paul Jackman
Corporate Affairs Manager
Phone 04 471 3671, home 04 479 5457, pager 026 105 085,
Email jackmanp@rbnz.govt.nz