Story: Prices and inflation

Setting the official cash rate

After 1989 the main tool in the control of price inflation was the Reserve Bank’s ability to set the official rate that banks pay for overnight borrowing. The rate was announced by the governor at a six-weekly press conference. In this clip from 10 March 2005, the governor of the Reserve Bank, Allan Bollard, explains why the the bank is increasing the rate. The increase was designed to slow down the rising price of housing by making mortgages more expensive, and to reduce demand in the economy. It also had the effect of making the New Zealand dollar more expensive, because foreign investors could earn a higher rate of interest. It therefore hurt New Zealand exporters.

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How to cite this page:

Adolf Stroombergen, 'Prices and inflation - Controlling inflation', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/video/23090/setting-the-official-cash-rate (accessed 22 February 2020)

Story by Adolf Stroombergen, published 11 Mar 2010