Higher interest rates, but not yet.
That's the message from the Reserve Bank, which left the Official Cash Rate alone today but signalled that an increase was likely early next year to bring inflation under control.
The OCR, a key influence on floating and short-term fixed rate mortgages, remains at 6.5 per cent where it's been since mid May. It next comes up for review January 24.
Some commentators had been expecting the OCR to go up sooner rather than later, so it could put the bite on inflation that's now moving out of the RB's comfort zone.
Governor Don Brash acknowledged this morning that annual CPI inflation would exceed the top of the RB's target band for the next several quarters.
"Even so, stripped of the transient effects of international oil prices and cigarette taxes, CPI inflation will remain well within the target range," he said. "In accordance with our longstanding agreement with Government, the Bank will continue to focus on the persistent elements of inflation and therefore ignore the transient elements."
Brash said that there were clearly some risks that inflationary pressures would turn out to be stronger than expected.
"...At this stage, we believe that a small firming of interest rates next year should be sufficient to ensure that the current spike in inflation will prove transitory."
