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Bollard holds firm on OCR

The Reserve Bank surprised nobody today, leaving the official cash rate unchanged at 2.5 percent.

The Reserve Bank surprised nobody today, leaving the official cash rate unchanged at 2.5 percent.

Reserve Bank governor Alan Bollard said the European debt crisis had led to "high levels of volatility" in the markets, and pointed to a softening in international economic activity, including in the Asia-Pacific region.

“Global developments are having some negative impact on New Zealand, though to date it has been limited. Business confidence has declined and investment spending is likely to remain weak for some time. In addition, tightness in international markets means funding costs for New Zealand banks will increase to some degree over the coming year," he said.

“There is a risk that conditions weaken further."

ASB economist Christina Leung said there was little urgency for the RBNZ to raise the OCR and expected it to remain constant until December 2012.

"While recent inflation indicators also suggest there is breathing space for the RBNZ on the inflation front at the moment, the fact medium‐term inflation expectations remain close to the top of the RBNZ’s target band is of some concern."