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OCR rises to 5.25 per cent

The Reserve Bank today increased the Official Cash Rate (OCR) to 5.25 per cent.

This increase came with the Reserve Bank’s scheduled January OCR review.

Reserve Bank Governor Don Brash said today: "Both the domestic and world economies are growing strongly, and at least as strongly as foreshadowed in our last Monetary Policy Statement (MPS).

"The September quarter GDP number, released in December, confirmed our view that the economy is growing strongly, and that the recovery has been underway since the middle of 1998. Business and consumer confidence remain high, and international share markets are buoyant. Strong growth in the world economy is prompting interest rate rises around the world.

"The November MPS projected an ongoing series of interest rate increases, and today’s announcement should be seen in that context.

"Strong growth is gradually using up spare capacity in the economy. As this happens, to avoid inflation pressures building, the Reserve Bank needs to ease back on the degree to which monetary policy is stimulating the economy. An OCR of 5.25 per cent is still stimulatory, as opposed to being a brake on the economy, but less so than previously.

"By gradually, but promptly, adjusting the OCR in this fashion, the Reserve Bank is attempting to ensure that price stability is delivered in the context of economic growth that continues steadily for as long as possible," Dr Brash concluded.

Dr Brash noted that the OCR decision had been made without knowledge of the December quarter CPI, to be released later this morning. He stressed that knowledge of that number would not, by itself, materially alter the Bank’s policy assessment, which focuses on inflation prospects one to two years ahead.

ENDS

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