29 Apr 2011

Reserve Bank takes cautious approach

7:06 am on 29 April 2011

The Reserve Bank is sticking with its cautious approach to the economic recovery, and is warning the high New Zealand dollar may dampen growth.

As expected, the central bank on Thursday held the Official Cash Rate (OCR) at 2.5%, saying the outlook for the economy remains very uncertain.

Reserve Bank governor Alan Bollard says business confidence and consumer spending have shown signs of strengthening since February's earthquake but many firms and households remain adversely affected.

The central bank noted that trading partner growth remains robust and farm investment is picking up, but warned rising oil prices and the high New Zealand dollar are acting as unwelcome headwinds.

ANZ's head of market economics and strategy, Khoon Goh, says there's little the Reserve Bank can do about that, as factors such as high commodity prices, the upwards pull from a strong Australian dollar and a weakening US dollar are keeping the New Zealand currency high.

Mr Goh says the tone of the central bank's statement was a lot less downbeat than in March, and while inflation appears subdued for now, it might not be down the track.