By www.CentralBankNews.info
New Zealand’s central bank maintained its official cash rate at 2.5 percent and repeated that it would hold the rate steady through the year, but warned that it would probably have to tighten policy in the future, depending on how much the housing market and construction sector fuels inflation pressures.
The introduction of a tightening bias by The Reserve Bank of New Zealand (RBNZ) was not expected by economists, though the central bank has often voiced its concern over the strength of the housing market and the effect this may have on inflation.
The RBNZ, which has held its its policy rate steady since March 2011, said inflation had been very low over the past year, helped by the strong New Zealand dollar and international and domestic competition, but it was now expected to trend upwards towards the midpoint of the bank’s 1-3 percent target band as growth accelerates over the coming year.
“The extent of the monetary policy response will depend largely on the degree to which the growing momentum in the housing market and construction sector spills over into inflation pressures,” the bank’s governor, Graeme Wheeler, said in a statement.
“Although removal of monetary stimulus will likely be needed in the future, we expect to keep the OCR unchanged through the end of the year,” he added.