The OCR was cut during 2008 and early 2009 from a high of 8.25 percent to just 2.5 percent. These reductions were appropriate, despite high headline rates of inflation at the time due to record high oil prices. The policy easing was consistent with an outlook for rapidly diminishing inflation pressures as the global and domestic economies turned sharply downwards.
Going forward, medium term price stability will remain the primary objective of monetary policy. However, we expect that monetary policy will have more bite over the next few years than it has had for many years; for a number of reasons: First, following the crisis our banks now face a higher cost of funds.