On 10^th June 2010 the RBNZ announced that it increased the OCR by 25 basis points to 2.75%. This was the first increase in 13 months and consequently floating interest rates rose on the back of this.

 

This announcement came with the Reserve Bank Governor Alan Bollard stating that “The economy has entered into its second year of recovery with growth becoming more broad based”.

 

A number of factors have helped aid this positive outlook with an expected growth by the RBNZ of 3.5% within the New Zealand economy over this year and next. More recent commentary suggests this growth rate is too optimistic.   

 

The main drivers behind expected growth include an increase in export volumes, an improving labour market and a pick-up in residential house sales and business investment. We have also seen continuing recovery with our overseas trading partners Australia, the United States and particularly Asia, which along with an increase in export commodity prices has offered a boost to export incomes. Sustainability of this will be subject to global stability. From our experience the residential housing market remains slow.  

 

We note Alan Bollards last two paragraphs of that announcement and his comments toward further uses of monetary policy stimulus and increases in the OCR on July 29^th.

 

“Given this outlook and as previously signaled, we have decided to begin removing some of the monetary policy stimulus that is currently in place. The further removal of stimulus will be reviewed in light of economic and financial market developments”.

 

“The fact that bank funding costs are higher, long-term interest rates are higher than short-term interest rates, and a greater proportion of borrowers use floating rate mortgages should all reduce the extent to which the OCR will need to be increased relative to previous cycles”.

 

While a number of economists are predicting another .25% rise in the OCR, there appears to be decreasing evidence to support it. Either way we will know on July 29^th 2010 if any increase will raise concern about the resulting impact on interest rates.

 

To view the full statement released by RBNZ please click here.

 

Source: The Reserve Bank of New Zealand – News Releases.