Cash rate held at 2.75 per cent

The Reserve Bank of New Zealand has kept the official cash rate (OCR) on hold at 2.75 per cent as its monetary policy committee says the economy continues to recover, although conditions remain uneven.

The committee voted four to three to leave the OCR unchanged after two recent increases but noted further rises are likely, subject to the economic outlook.

Members noted inflation was lower than expected at 3.7 per cent in the September quarter, wage growth has been subdued to date and medium-term inflation expectations have remained stable. 

“However, core inflation measures have increased to around the top of the committee’s one to three per cent target band, and price increases have become more broad-based across the economy,” the committee says.

“Global events are adding to near-term inflation pressures in New Zealand. Fuel prices have risen further because of ongoing disruptions in global energy markets, and the exchange rate has fallen by around three per cent since early September.”

The committee adds it is focused on returning inflation to the two per cent target mid-point over the medium term, discounting temporary disturbances to inflation and avoiding unnecessary economic instability. 

“All members agreed on the overall outlook for inflation. However, members differed in how much weight they placed on various risks and the timing of the monetary policy response. 

“The committee agreed that tighter monetary policy is likely to be required but remains conditional on the economic outlook.”