RB leaves interest rates unchanged

Monday 13 December 2004

Reserve Bank Governor Alan Bollard surprised nobody today when he left the Official Cash Rate (OCR) unchanged in the December quarter Monetary Policy Statement.

By The Landlord

But Dr Bollard sided more towards Scrooge than Father Christmas in his outlook for interest rates.

Instead of a pattern of gradual rate relief starting next year, Dr Bollard stressed a further rate hike could not be ruled out.

This is despite the bank no longer expecting inflation to creep outside the 1-3 per cent target band - as had been forecast in September - and an economic slowdown being almost assured next year.

The bank is projecting the economy will expand by an impressive 5.2 per cent in calendar 2004 - that is much stronger than the 4.65 per cent the bank forecast in September.

"The tightening in monetary policy over the past year currently looks sufficient to keep medium-term inflation pressures in check," Dr Bollard said.

But with inflation expected to remain near the top of the target band there was "little headroom" to absorb further inflation pressures.

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