What the Reserve Bank said - Sept

The Reserve Bank today left the Official Cash Rate unchanged at 3.5 percent.

New Zealand’s economy is expected to grow at an annual pace of 3.7 percent over 2014.  Global financial conditions remain very accommodative and are reflected in low interest rates, narrow risk spreads, and low volatility across a range of asset markets.  Accommodative financial conditions are supporting a moderate rate of global growth, albeit uneven across regions.

New Zealand’s economic growth continues to be supported by increasing construction activity and ongoing strength in consumption and business investment.  A high level of net immigration is adding to domestic demand as well as productive capacity.  Economic growth is projected to moderate in response to recent commodity price declines and the impact of policy tightening.  The high exchange rate continues to restrain growth in the traded sectors.

The exchange rate has yet to adjust materially to the lower commodity prices.  Its current level remains unjustified and unsustainable.  We expect a further significant depreciation, which should be reinforced as monetary policy in the US begins to normalise.