The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee decided to keep the official cash rate (OCR) unchanged at 2.25% at its meeting this morning, Wednesday, April 8, as expected, for the second consecutive meeting.

The statement issued by the bank indicated that events in the Middle East since the bank’s last meeting in February have significantly altered the outlook and the balance of risks related to inflation and growth. Inflation is expected to rise and the economic recovery to weaken in the near term, with annual consumer price inflation projected to reach 4.2% in the second quarter of this year, driven by higher fuel prices.

The committee discussed the magnitude and pace of the monetary policy response to the risks of rising inflation and anticipates gradually moving the official cash rate towards a more neutral level as economic activity recovers and inflationary pressures subside in the near term.

Regarding the timing of any increase in the official interest rate, members discussed that a proactive response to medium-term inflationary pressures could protect against the risk of destabilizing inflation expectations. This might mean that monetary policy would require less tightening.

Accordingly, the Committee decided to leave the interest rate unchanged at this meeting and will continue to assess the factors affecting the inflation outlook. The Committee stands ready to take decisive action to ensure that inflation reaches the middle of the 2 percent target range over the medium term.