OCR remains unchanged at 2.75pct

OCR remains unchanged at 2.75pct

As expected the Reserve Bank has left the official cash rate (OCR) unchanged at 2.75 percent.

It says the sharp drop in dairy prices since early 2014 continues to put pressure on farmer incomes but growth in both the services sector and construction remains strong. That's driven by high levels of migration, tourism and low interest rates.

However, house-price inflation in Auckland remains strong and poses a risk to the country's financial stability. As the bank has maintained for some time, residential building, while accelerating, will take a while to correct the current under-supply of housing.

The Reserve Bank's new loan to valuation ratio restrictions on lending and the Government's new tax requirements come into effect at the beginning of next month.

The bank also warned that global economic growth is below average and there are concerns about prospects for slower growth in China and East Asia.

It did point to some bright indicators, with dairy prices rising in recent weeks, contributing to an improvement in household and business sentiment. But it's not known whether that will continue.

September saw the third consecutive drop in interest rates as the Reserve Bank attempted to return CPI inflation to its target rate of between 1 and 3 percent. Inflation remains below that range, largely due to a strong New Zealand dollar and a 60-percent drop in oil prices since the middle of last year.

The Reserve Bank has indicated a further cut in the OCR seems likely, which would be good news for mortgage-holders but not so for savers.

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