24 January 2001

OCR unchanged at 6.5 per cent

The Reserve Bank today announced that the Official Cash Rate (OCR) would remain at 6.5 per cent in the meantime.

Commenting on the announcement, Reserve Bank Governor Don Brash said "In our December Monetary Policy Statement, we noted that the New Zealand economy appeared to be regaining momentum after a mid-year pause, with both consumer and business confidence measures having rebounded strongly. Faced with a very low and stimulatory exchange rate, and a consensus outlook on the world economy that remained robust, it appeared likely that a gradual further rise in the OCR would be needed this year.

"Since then, the exchange rate has strengthened. Perhaps even more important, expectations for global growth this year have slowed appreciably. This fall-off in expected growth has been most notable in the United States, but is also a feature of the outlook for Australia and for much of Asia.

"Although CPI inflation was marginally higher than we had expected in the December quarter, the main factors driving the spike in inflation were one-off in nature, as anticipated in the December Monetary Policy Statement. Other one-off factors now suggest that the peak in the CPI may be of rather shorter duration than we had earlier expected, with a commensurately reduced risk of spill-over from this spike into generalised wage and price setting behaviour.

"Given these factors, we feel we can prudently leave the OCR unchanged for the moment. We will have another opportunity to assess the situation when we issue our next Monetary Policy Statement on 14 March," Dr Brash concluded.

For further information contact
Paul Jackman
Corporate Affairs Manager
Ph 04 471 3671, 021 497 418, home 04 938 8177, Jackmanp@rbnz.govt.nz