The Reserve Bank has left official interest rates unchanged again at today's review, even though Governor Don Brash is talking about a sharp increase in CPI inflation in the near term and tension in the economy.
Addressing Parliament's Finance and Expenditure Committee this morning, Brash said the main reason for leaving the OCR untouched was that the medium-term inflation outlook remained unclear. He said business confidence was moderate, consumer confidence slightly below neutral, credit growth low and house prices flat or falling.
"This is an environment in which price increases may cost businesses sales, and wage increases beyond productivity may cost employees their jobs.
"So there is a tension between a growing desire to recoup higher costs of living and of doing business on the one hand and, on the other, an environment in which doing that is increasingly difficult."
Brash said that this tension might be resolved in a number of ways but that, given the continuing uncertainty, leaving the OCR stable right now "seemed our best course of action".
The RB has left the OCR at 6.5 per cent, the third review in a row it's stayed the same. The OCR kicked the year off at 5.0 per cent, rising at the January, March, April and May reviews before settling at its present level.
The next time the rate comes under the spotlight is December 6, coinciding with the Bank's next Monetary Policy Statement.
