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OCR raised to 5.0 per cent

OCR raised to 5.0 per cent

NEWS RELEASE
Embargoed until
17 November 1999
Time
9.00 am

OCR raised to 5.0 per cent

The Reserve Bank today raised the Official Cash Rate (OCR) from 4.5 per cent to 5.0 per cent, the first increase since the OCR was introduced in March 1999.

That's come with the release of the Reserve Bank's November 1999 Monetary Policy Statement.

Reserve Bank Governor Don Brash commented, "The current recovery began over a year ago, boosted in part by stimulatory monetary conditions. In the Bank's view, now is the right time to begin to ease back on the accelerator. Monetary policy will remain stimulatory, but a little less so than previously.

"We foreshadowed a change of this sort in the August Monetary Policy Statement, if events unfolded as expected. The June GDP fall was a surprise, but, after looking carefully at a great deal of data, we believe this was an aberration. Numerous indicators suggest that the economy bounced back strongly during the September quarter, and that it is now growing at an annualised rate of around 4 per cent.

"We expect this growth will continue, supported by an increasingly robust world economy. If so, the sustained growth will absorb the New Zealand economy's spare capacity, and monetary conditions will need to be less expansionary to keep inflationary pressures in check.

"Again, if the economy evolves as we expect, in the next year or two monetary conditions are likely to move gradually from being stimulatory to more neutral levels. Official interest rates in many other advanced countries - UK, Australia, USA, Euroland - are now also rising for similar reasons.

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"Today's tightening is not in response to recent oil price increases. The Reserve Bank looks beyond these one-off price rises, focusing on the inflation outlook in the medium-term - one to two years ahead. In our judgement, these recent increases will not spill over into medium-term inflation pressures.

"By standing ready to act, as we've done today, the Reserve Bank makes its best contribution to steady and, as a consequence, prolonged economic growth," Dr Brash concluded.

For further information contact

Paul Jackman

Corporate Affairs Manager

E-mail Jackmanp@rbnz.govt.nz


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