OCR rises but Bollard surprisingly dovish

Bollard raised the official cash rate (OCR), which directly affect floating mortgage rates, from 6.25% to 6.5%.

But he said that current monetary policy settings "are now doing enough to ensure price stability." Some economists had expected an outside chance that the OCR would go to 6.75% today and many had been thinking there was a very good chance of it going to that level in December.

The currency markets reacted immediately, pushing the New Zealand dollar down half a US cent to 68.90 US cents. The reaction in wholesale interest rate markets was more subdued with the 90-day bank bills little changed while the December 90-day bank bill futures slipped from implying the physical bills will be at 6.83% in December to 6.75% by then.

Craig Ebert, an economist at Bank of New Zealand, says that he now rates the chance of a rate hike in December at just 20%, down from 50% before today's move. "At the margin, it's a bit more dovish than we had expected," he says.

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