The Reserve Bank today left the Official Cash Rate unchanged at 4.75 percent.
Reserve Bank Governor Don Brash commented “This decision reflects a balancing of risks between a domestic economy that seems rather more buoyant than we expected at the time of the November 2001 Monetary Policy Statement and continuing weakness offshore.
“As expected in November, growth in the economies of our trading partners has continued to be sluggish. Notwithstanding a widespread expectation that a global recovery is imminent, there remains a material risk that the situation could deteriorate further. The outlook in Japan is of particular concern. Commodity prices for New Zealand’s exports have fallen quite substantially, and rather earlier than expected.
“However, domestically, a combination of factors suggests that activity is currently running quite strongly. Consumer spending appears more buoyant than expected previously, and indications are that business investment is also holding up better than expected. The housing market has strengthened in recent months, and the labour market continues to be relatively tight. As foreshadowed in November, CPI inflation for the year to March 2002 is likely to be well above 2 percent, which would become a concern if any resultant increase in inflation expectations were reflected in price and wage setting behaviour.
“These factors are pushing inflation in opposite directions. In the weeks and months ahead, the Bank will be watching closely to detect which set of pressures is beginning to predominate,” Dr Brash concluded.
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