The Reserve Bank has left the Official Cash Rate (OCR), which helps determine home lending rates, unchanged at 2.5 percent.
Reserve Bank Governor Alan Bollard said the economy has grown more strongly than was expected, and it appears that the recovery is getting back on track, supported by a strong terms of
trade.
"At the same time, however, current fragility in global financial markets, including the uncertainty around the US Government's debt ceiling, continues to highlight the downside risk to trading partner activity noted in the June Statement," he said.
Annual headline CPI inflation continues to be above the Bank's 1 to 3 percent target band.
"However, much of the current spike in inflation has been driven by the October 2010 increase in the rate of GST, and will therefore be temporary. Wage and price setters should focus on underlying inflation, which is currently estimated to be below 2.5 percent," Dr Bollard said.
He said provided current global financial risks recede and the economy continues to recover, the Bank sees little need for the March 2011 'insurance' cut to remain in place much longer.
"The current very high value of the New Zealand dollar is acting as a drag on the New Zealand economy. If this persists, it is likely to reduce the need for further OCR increases in the short term."
