We also anticipate that as our interest rate differentials narrow against other advanced economies, the exchange rate will weaken and, along with an increase in commodity prices and gradual rise in world inflation, will help traded goods inflation to move into positive territory.
Our decision to further lower the OCR does increase the potential risk of further fuelling increases in asset prices, including within the housing market. This is one of the difficult tradeoffs that we have had to confront. The risks here are partly balanced by our macro-prudential policy moves that will further boost the resilience of the banking system.