RBNZ Raises OCR To 3.00 Percent
April 23 2014 - 6:30PM
RTTF1
The Reserve Bank of New Zealand on Thursday raised its Official
Cash Rate by 25 basis points, to 3.00 percent from 2.75
percent.
The decision was in line with expectations, and it marks the
second straight month with a rate hike following 24 straight
meetings in which the rate was not changed.
"New Zealand's economic expansion has considerable momentum,
with GDP estimated to have grown by 3.5 percent in the year to
March. Growth is gradually increasing in New Zealand's trading
partners, but inflation in those economies remains low. Global
financial conditions continue to be very accommodating," Reserve
Bank Governor Graeme Wheeler said in a statement that accompanied
the decision.
The OCR had been unchanged for more than three years; the RBNZ
pared the rate from 3.00 percent on January 27, 2011 in an attempt
to spur the economy.
But the central bank had plainly said it would begin raising the
rate in early 2014, since it was pleased with the rate of
recovery.
"Prices for New Zealand's export commodities remain very high,
though auction prices for dairy products have fallen by 20 percent
in recent months. Domestically, the extended period of low interest
rates and strong growth in construction sector activity are
supporting the recovery. Net immigration continues to increase,
boosting housing and consumer demand," Wheeler said.
The bank also wishes to keep overall inflation close to its
target of 2.0 percent; in 2013, CPI was up 1.6 percent and trending
to the upside.
"Spare capacity is being absorbed, and inflationary pressures
are becoming apparent, especially in construction and other
non-tradable sectors. The high exchange rate remains a headwind to
the tradables sector, and along with low import price inflation has
been holding down tradables inflation. The Bank does not believe
the current level of the exchange rate is sustainable," Wheeler
said.
The RBNZ governor also hinted that the bank is not finished with
rate hikes - although the pace of the increase will be determined
by the trend of economic data.
"The speed and extent to which the OCR will be raised will
depend on economic data and our continuing assessment of emerging
inflationary pressures, including the extent to which the high
exchange rate leads to lower inflationary pressure. By increasing
the OCR as needed to keep future average inflation near the 2
percent target mid-point, the Bank is seeking to ensure that the
economic expansion can be sustained," Wheeler said.