Official Cash Rate stays the same

Reserve Bank Governor Adrian Orr
Reserve Bank Governor Adrian Orr has confirmed that the Official Cash Rate will stay at 1 percent. Photo credit: Supplied.

The Official Cash Rate (OCR) will remain at 1 percent, the Reserve Bank has just announced.

In a statement released on Wednesday, Reserve Bank Governor Adrian Orr said the decision is based on employment and inflation being close to target, a positive outlook for Government investment and signs that domestic spending will increase.

"Employment is at or slightly above its maximum sustainable level while consumer price inflation is close to the 2 percent midpoint of our target range.

"Low interest rates remain necessary to keep employment and inflation around target," Orr said.

Economic growth is expected to accelerate over the second half of 2020, driven by monetary and fiscal stimulus and high terms of trade.

"The outlook for government investment is stronger following the Government’s announcements in December.

"There are also indications household spending growth will increase."

Acknowledging the economic impact of the Coronavirus outbreak - which until the virus is contained is still uncertain - Orr said that he expects most of the impact to be contained in the first half of the year.

"There is a risk that the impact will be larger and more persistent [and] monetary policy has time to adjust if needed as more information becomes available," Orr said.

Globally, the economic environment has shown signs of stabilising and trade tensions have eased.

On the downside, business investment remains low due to competitive pressures and lower confidence. 

"Stretched capacity in the construction sector could see Government projects compete [for] resources away from the private sector, however new infrastructure creates investment opportunities," Orr said.  

Wednesday's announcement follows the Reserve Bank's decision to leave the OCR unchanged in its September and November reviews.

In May, the OCR was cut by 25 basis points, followed by a 50 basis point cut in August. 

With the next OCR announcement due in March, the Reserve Bank can only wait and see whether spending and investment pick up as expected - and how Coronavirus risks play out in the global economy.

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