Reserve Bank keeps OCR unchanged

Reserve Bank keeps OCR unchanged

The official cash rate (OCR) will stay at 2.25 percent, the Reserve Bank announced this morning.

Governor Graeme Wheeler surprised the market when he lowered it in March, but despite low inflation, this time decided to leave it where it is.

The Reserve Bank is challenged with a major balancing act, in terms of relieving pressure on manufacturers while also being conscious of the effect a possible cut would have on New Zealand's housing situation. 

Dieter Adam from the Manufacturers and Exporters Association says the pressure on manufacturers carries a major warning.

"This development seems to be getting more and more out of control. It has not only social consequences, but also economic consequences and we just can't keep going that way."

The Reserve Bank says indications show that house price inflation in Auckland may be picking up. House prices remain at very high levels and pressures are building in the regions.

Mr Adam says the rest of the country has paid enough penance for the super city's problems.

"We've seen an almost 10 percent rise in the New Zealand dollar over the last few months. If that keeps going, New Zealand manufacturers will be squeezed again."

Weaker growth in China and other emerging markets has also contributed to the poor outlook for global growth.

Although prices for commodities including oil and dairy have picked up recently, they still remain at a weak level.

Inflation is well below the Reserve Bank's target range of 1 to 3 percent. It hasn't been in that range since mid-2014.

The Reserve Bank will continue to keep a close eye on the emerging flow of economic data, with further monetary policy a possibility to ensure future average inflation settles near the middle of the target range. 

Labour's finance spokesman Grant Robertson says the Reserve Bank has been left trying to balance the red-hot housing market with low inflation, and the Government's inaction has left Mr Wheeler with few options but to keep the rate the same.

"Bill English's complacency has put the economy in a holding pattern. Inflation is non-existent, the exchange rate is stubbornly high and growth per person has been described by economists as 'sluggish'," he says. 

"Mr Wheeler can't do it all on his own. The Government needs to take action on multiple fronts -- that will make it easier for the Reserve Bank to do its job."

Mr Robertson has called on the Government to take action to diversify the economy in next months' Budget.

Green Party finance spokeswoman Julie Anne Genter says the problems in Auckland's housing market are hurting everyone else.

"The Bank clearly blamed runaway Auckland house prices and the lack of adequate housing supply as one of the key reasons for its decision to keep the OCR unchanged today.

"National needs to introduce strong measures that will contain house price inflation in Auckland instead of leaving it all up to the Reserve Bank to manage with one tool -- interest rates."

She says the Government needs to introduce a capital gains tax which excludes the family home, as well as a ban on foreign buyers and building more homes affordable to first-home buyers.