OCR 5.50% - Inflation Approaching Target Range

The Monetary Policy Committee today agreed to maintain the Official Cash Rate at 5.50 percent.

Restrictive monetary policy has significantly reduced consumer price inflation, with the Committee expecting headline inflation to return to within the 1 to 3 percent target range in the second half of this year.

The decline in inflation reflects receding domestic pricing pressures, as well as lower inflation for goods and services imported into New Zealand. Labour market pressures have eased, reflecting cautious hiring decisions by firms and an increased supply of labour. The level of economic activity, including business and consumer investment spending and investment intentions, is consistent with the restrictive monetary stance.

Current and expected government spending will restrain overall spending in the economy. However, the positive impact of the pending tax cuts on private spending is less certain.

Some domestically generated price pressures remain strong. But there are signs inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions.

The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.

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