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RBNZ: Monetary Stimulus Continued

The Monetary Policy Committee agreed to maintain the current stimulatory level of monetary settings in order to meet its consumer price inflation and employment objectives. The Committee will keep the Official Cash Rate (OCR) at 0.25 percent, and the Large Scale Asset Purchase and Funding for Lending programmes unchanged.

The global economic outlook has continued to improve since the February Monetary Policy Statement. Ongoing fiscal and monetary stimulus are continuing to underpin the global recovery in economic activity. However, economic uncertainty remains elevated and divergences in economic growth both within and between countries are significant. New Zealand’s commodity export prices continue to benefit from robust global demand.

Economic activity in New Zealand slowed over the summer months following the earlier rebound in domestic spending. Short-term data continues to be highly variable as a result of the economic impacts of COVID-19.

The planned trans-Tasman travel arrangements should support incomes and employment in the tourism sector both in New Zealand and Australia. However, the net impact on overall domestic spending will be determined by the two-way nature of this travel. The extent of the dampening effect of the Government’s new housing policies on house price growth, and hence consumer price inflation and employment, will also take time to be observed.

Overall, our medium-term outlook for growth remains similar to the scenario presented in the February Statement. This outlook remains highly uncertain, determined in large part by both health-related restrictions, and business and consumer confidence.

Some temporary factors are leading to specific near-term price pressures. These factors include disruptions to global supply chains and higher oil prices. However, the Committee agreed that medium-term inflation and employment would likely remain below its remit targets in the absence of prolonged monetary stimulus.

The Committee agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained at the 2 percent per annum target midpoint, and that employment is at or above its maximum sustainable level. Meeting these requirements will necessitate considerable time and patience. The Committee agreed that it was prepared to lower the OCR if required.

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