The economists view on the OCR decision

 ASB's Jane Turner and Nick Tuffley

 The RBNZ left the OCR unchanged at 2.5% at the July OCR Review, as widely expected. However, the accompanying statement suggests the RBNZ would like to remove the 50 basis point ‘insurance' cut soon, provided it saw an easing in global risks and a continued recovery in the NZ economy. Recent domestic developments have been encouraging, and the RBNZ is now more confident that the recovery is back on track. We now expect a 50 basis point OCR increase in the September meeting.

Beyond this, the RBNZ has indicated that the timing and extent of further OCR increases will be largely influenced by the level of the NZ dollar. Given we expect the NZD to remain elevated for much of this year, we expect the RBNZ will leave the OCR on hold at 3% until January next year.  Further OCR increases will likely be in 25 basis point increments as the RBNZ looks to tighten monetary policy steadily over 2012.

Growth