Home owners, businesses, and unions can breath easier today after Reserve Bank governor Alan Bollard left the Official Cash Rate (OCR) unchanged at 7.25 per cent.
In his regular six-weekly review of the OCR, Dr Bollard said: "The balance of inflation risks remains skewed to the upside."
The announcement caused
the NZ dollar to fall against its US counterpart to US65.74c immediately afterwards. Against the Australian dollar the kiwi dropped from A86.85c to A86.42c.
A slim majority of economists had expected Dr Bollard to hike the rate today to try and quell inflation that has been outside the bank's 1-3 per cent target range for five quarters.
However, yesterday's Consumer Price Index rise of 0.7 per cent in the September quarter was lower than anticipated, resulting in the annual rate falling from 4.0 per cent to 3.5 per cent.
Today the bank said there had been a significant improvement to the near-term inflation outlook since its September Monetary Policy Statement.
In a statement, it said: "We expect lower fuel prices, together with the recent rebound in the exchange rate and Statistics New Zealand's reweighting of the CPI, to give an unusually low December quarter CPI increase."
It said inflation pressures appeared to be abating gradually but that some indicators of resource pressures "continue to signal caution".
"Taking all of this into account, monetary policy pressure will need to be maintained for some time to bring inflation back sustainably within the 1-3 percent target band," it said.
"In this regard, the policy outlook is little changed from our September statement.
"The balance of inflation risks remains skewed to the upside. Further monetary policy tightening cannot be ruled out, and any easing of policy remains a considerable way off."
Dr Bollard refused to take questions after announcing the OCR decision.
Citigroup senior economist Annette Beacher said the Reserve Bank had chosen to talk hawkish and sit tight on rates, which she considered to be the right choice.
"A hike would have caused too much uncertainty. They were so hawkish in September that it was easy to just keep that tone and they've clearly warned that inflation risks are to the upside and they may have to tighten again," she said.
- NZPA / NZ HERALD STAFF
