The Reserve Bank issued a surprising warning that domestic inflationary pressures remained "stubbornly high" and it wanted to see evidence of an easing in these domestic pressures as it decided on the timing and size of future rate cuts.
"With weaker short term growth and sharply lower oil prices we now expect that annual CPI inflation will return to the target band of 1-3% around the middle of 2009," Reserve Bank Governor Alan Bollard said in announcing a 100 basis point cut in the Official Cash Rate to 6.5%.
"However, we still have concerns that domestically generated inflation (particularly in labour costs, local body rates, electricity prices and construction costs) is remaining stubbornly high," Bollard said.
"Should the outlook for inflation evolve as projected we would expect to lower the OCR further," he said.
"However, the timing and extent of OCR reductions over the coming months will depend on evidence of actual reductions in domestic cost pressures as well as how the global financial developments play out."
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.