Interest Rates

The RBNZ’s assessment of the rate and sustainability of Economic Growth in NZ and its Trading Partners and the underlying effect of this growth on NZ’s Rate of Inflation. It is thought that a change in the OCR may take 18 months to filter through to the rate of Economic Growth and affect the Rate of Inflation.

e.g. A sustained period of high economic growth will usually lead to inflation. Therefore the RBNZ will slowly increase the OCR to slow down Economic Activity to keep Inflation in check. The equivalent to steadily applying the brakes to a car going down hill.

Consequently, when Economic times are more difficult or when there is an unexpected Economic Shock (e.g. Sept 11 Attacks) the OCR will usually be lowered to stimulate the Economy.

Therefore, prevailing Economic Theory is relatively simple: The price or interest rate paid for access to capital by both Business and Individuals is the key ingredient in managing the performance of the Economy.

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