OCR remains at 3%

No surprises this morning as Alan Bollard left the OCR at 3%. Economists are fairly unanimous that he will not raise the official cash rate again until March next year. Bollard said:

“Despite some data turning out weaker than projected, the medium-term outlook for the New Zealand economy remains broadly in line with that assumed at the time of the September Monetary Policy Statement.”

“Downside risks to the outlook for global growth continue, with high public and private debt inhibiting recovery in many developed economies. Moreover, it is unclear how further policy support would impact on the outlook for growth in our Western trading partners. Offsetting this weakness, strong growth continues in China, Australia and emerging Asia.”

Overall, continued GDP growth is expected to eventually remove the surplus capacity and headline inflation is assumed to increase following the recent rise in the rate of GST. The gloomy condition of domestic demand suggests this inflation spike will have limited impact on medium-term inflation expectations

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