14 Mar 2013

No plan to move OCR this year

7:45 pm on 14 March 2013

An uneven economic recovery has prompted the Reserve Bank to keep interest rates at record lows.

The bank left the Official Cash Rate at 2.5%, as expected, and signalled the rate will stay at that level for the rest of the year.

Reserve Bank governor Graeme Wheeler says demand and production are expanding, the Christchurch rebuild is picking up speed and business and consumer confidence is rising.

He also repeated earlier warnings about rising house prices, saying he does not want to see that spilling over into inflation.

On the other hand, he notes the overvalued New Zealand dollar is undermining profitability in the export and import sectors.

Mr Wheeler says unemployment remains persistently high, while the dollar and the current drought could dampen growth.

Mr Wheeler says he expects to keep the OCR unchanged this year.

Federated Farmers has welcomed the decision and says the OCR could go lower still.

The cost of the drought has already been set beyond the $1 billion mark and Chief Executive of Federated Farmers, Conor English, says interest rates could in fact be lowered to allow farmers struggling with high levels of debt and the effects of the drought, further relief.

Analysts say it appears interest rates are on hold for longer, prompting the currency to fall 0.75 cents against its American counterpart to below 82 US cents.

A currency strategist at BNZ, Mike Jones, says Mr Wheeler's comments were more doveish than the market was expecting.

He says the Reserve Bank has taken a clear swipe at the markets pricing in a rate hike for later this year.

First NZ Capital director of economics and strategy Chris Green says uncertainty about the impact of the drought has weighed on the central bank.

He says he views the statement as a slight easing in the bank's tightening bias.

The benchmark interest rate has not changed since March 2011.