Academic journal article The Reserve Bank of New Zealand Bulletin

Reserve Bank Raises OCR to 7.50 Percent

Academic journal article The Reserve Bank of New Zealand Bulletin

Reserve Bank Raises OCR to 7.50 Percent

Article excerpt

8 March 2007

The Official Cash Rate (OCR) will increase by 25 basis points to 7.50 percent.

Reserve Bank Governor Alan Bollard said: "Recent indicators show clear evidence of a pick-up in economic activity in late 2006 and early 2007. Strengthening domestic demand is being supported by a resurgence in the housing market and an expansionary fiscal policy. The acceleration in housing reflects firming net immigration, a recovery in confidence, a continuing rapid expansion of mortgage credit at very low margins, and strong growth in household incomes. The recent lift in export commodity prices--particularly dairy--may also be a factor. All this is adding to resource pressures and increasing the risk of a re-emerging inflation problem in the medium term.

"The short-term inflation outlook continues to ease. CPI inflation is projected to be around the middle of the target band through 2007, benefiting from lower oil prices and the high exchange rate. Domestic price inflation is also expected to moderate somewhat in 2007, assisted by the effect of lower headline inflation on inflation expectations. Despite this, domestic inflation is projected to remain at high levels over the medium term and is subject to considerable upside risk. …

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