As expected, New Zealand’s Reserve Bank has kept interest rates unchanged after its meeting yesterday and that situation will continue for some time to come because of the impact of the February 22 second Christchurch quake which will help keep core inflation under control.
That’s despite the continuing boost to headline inflation from higher oil prices (a bit similar to Australia).
Reserve Bank Governor Alan Bollard said "the outlook for the New Zealand economy remains very uncertain" following February’s Christchurch earthquake.
But he said the bank sees inflation settling "comfortably" within the bank’s target band of 1% to 3% once GST and other tax increases drop out of the annual rate.
That has ruled out a rate rise for the time being, perhaps for the rest of 2011, so the Kiwi dollar fell briefly after the announcement.
The currency slid to 80.45 USc from 80.80c just before the announcement.
(The Australian dollar hit $US1.0947 yesterday).
“As was expected, business confidence, consumer spending and tourism activity all declined sharply following the earthquake," Mr Bollard said in his statement.
"The OCR was cut as insurance to help limit these adverse effects. Confidence and consumer spending have since shown signs of recovery, but many firms and households remain adversely affected in Christchurch.
"To date, activity in the rest of the country appears relatively unaffected, with housing market turnover and business investment beginning to increase.
“Trading partner growth remains robust, helping push New Zealand’s export commodity prices higher.
"Along with relatively favourable climatic conditions, the improved price outlook is supporting a pickup in on-farm investment.
"Higher oil prices and the elevated level of the New Zealand dollar are both unwelcome. They will have some dampening effect on economic activity.
“Headline inflation is currently being boosted by recent increases in indirect taxes.
"Annual inflation is expected to settle comfortably within the target band once these tax increases drop out of the annual rate.
“Given the outlook for core inflation and continued economic disruption stemming from the earthquakes, the current level of the OCR is likely to remain appropriate for some time.”
