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Monetary Policy

The focus of monetary policy is on maintaining price stability. A Policy Targets Agreement between the Governor of the Reserve Bank of New Zealand and the Minister of Finance sets out the specific targets for maintaining price stability, while seeking to avoid unnecessary instability in output, interest rates and the exchange rate. The most recent Agreement was signed in December 2008 after the new government took office. There were no substantive changes to the Agreement. For the purpose of the Agreement, the policy target is to keep future CPI inflation outcomes between 1% and 3% on average over the medium term.

Following the lowering of the OCR in response to the international credit crisis, the Reserve Bank began increasing the OCR again as the economy began to recover. The OCR was increased to 3.0% in July 2010, before a cut of 50 basis points to 2.5% as an "insurance cut" following the February 2011 Canterbury earthquake. Since then a deteriorating global outlook has meant that interest rates have remained at 2.5%, with increases expected towards the end of 2012 as the Canterbury rebuild gets underway creating some inflationary pressures.

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