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OCR increased to 5.75 per cent

The Reserve Bank of New Zealand has just made the following announcement.

OCR increased to 5.75 per cent

The Reserve Bank of New Zealand today increased the Official Cash Rate from 5.5 per cent to 5.75 per cent, but also signaled that further increases were now rather less likely than was indicated in the Reserve Bank's May Monetary Policy Statement.

Reserve Bank Acting Governor Rod Carr commented: "Adjusting interest rates so that they no longer actively encourage accelerated spending makes sense, given that the momentum of the New Zealand economy seems at least as strong as anticipated in May. Retail sales are at near record growth rates, helped along by very robust immigration flows, a strong tourist inflow and export incomes, though they are declining, are still at historically very healthy levels. Given the weakness of the world economy, recent overall growth performance has been outstanding.

"Nonetheless, since May there has been a much sharper rise in the exchange rate than allowed for previously, which has had the effect of tightening monetary conditions. If the exchange rate appreciation is sustained, or goes further, some heat will be taken out of future inflation pressures, reducing the extent to which interest rates may need to rise in the months ahead.

"Working in the same direction, international news from equity markets in particular suggests that the US economic recovery has become more fragile, with implications for the global economy. Furthermore, there are promising signs that New Zealand's inflation will peak in the next two quarters a little lower than earlier expected. Both factors will reduce inflation pressures further out.

"The balance of these factors will be the focus of the Bank's next full review, due with the Monetary Policy Statement on 14 August," Dr Carr concluded.

ENDS

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