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RBNZ: OCR set at 6.5 per cent

RBNZ: OCR set at 6.5 per cent

NEWS RELEASE
RESERVE BANK
OCR set at 6.5 per cent

The Reserve Bank has decided to increase the Official Cash Rate (OCR) by 0.5 per cent to 6.5 per cent. This came today with the release of the Reserve Bank's May Monetary Policy Statement.

Reserve Bank Governor Don Brash said: "Inflationary pressures are beginning to build. GDP in the December quarter of 1999 was 5.8 per cent higher than it was a year earlier. Even allowing for a significant slowing in growth in the March quarter, we estimate that over the last two years the economy has grown to the point where demand is beginning to put pressure on capacity, and thus beginning to create inflationary pressures.

"We project that growth will continue to be moderately strong over the next year or so, before slowing somewhat to around the sustainable growth rate, as the gradual tightening of monetary policy in recent months takes hold.

"There are already indications that inflation itself is beginning to pick up. It seems likely that inflation would increase in the next year or two if monetary conditions were not gradually tightened further. Today's decision to raise the OCR should be seen in this light.

"Looking ahead, there are lots of uncertainties. The only thing which is absolutely certain at this stage is where the OCR is set now, which reflects the information available now. Our projections are, as always, highly conditional. If the United States or Australian economies were to grow more slowly than projected, for example, then monetary policy further ahead would probably not need to tighten as much as projected here. On the other hand, if household expenditure in New Zealand were to rise very strongly, then monetary policy might need to tighten more than now projected.

"With a new Monetary Policy Statement issued approximately each three months, and an additional review between each Monetary Policy Statement, there is ample opportunity to adjust the OCR as new information comes to hand," Dr Brash concluded.

For further information contact
Paul Jackman
Corporate Affairs Manager
Ph 04 471 3671, hm 04 938 8177, 026 105 085



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