By www.CentralBankNews.info New Zealand’s central bank held its benchmark Overnight Cash Rate (OCR) steady at 2.5 percent and repeated that it expects to maintain the rate through the rest of the year but that “OCR increases will likely be required next year.”
The Reserve Bank of New Zealand (RBNZ), which has held its rate steady since March 2011, repeated that “the extent and timing of the rise in policy rates will depend largely on the degree to which the momentum in the housing market and construction sector spills over into broader demand and inflation pressures.”
The policy guidance by the RBNZ is slightly more specific than in July when it said a “removal of monetary stimulus will likely be needed in the future,” omitting any mention of when it may tighten.
Despite the current low level of inflation, partly due to the impact of the strong New Zealand dollar and stiff domestic and international competition, the RBNZ expects inflation to start accelerating toward the midpoint of its 1-3 percent target range next year as economic growth strengthens.
In addition, house prices continue to rise rapidly in Auckland and Canterbury and the central bank repeated that it “does not want to see financial or price stability compromised by continued high house price inflation.” New rules that restrict the size of loans on residential mortgages that come into effect next month are expected to help slow these house price increases.
New Zealand’s inflation rate eased to 0.7 percent in the second quarter from 0.9 percent in the first.
The central bank also repeated that the exchange rate of its dollar, known as the kiwi, remains high despite a fall on a trade-weighted basis since May and a lower rate would help the country’s exports.
The kiwi rose steadily against the U.S. dollar from March 2009 and hit US$ 0.83 at the start of this year from $0.49 four years ago. But since early May it had declined, hitting $0.77 at the end of August. But this month it has bounced back, trading around $ 0.81 today.
New Zealand’s economy slowed in the first quarter with Gross Domestic Product up by 0.3 percent from the previous quarter for annual growth of 2.4 percent, down from 3.2 percent in the fourth.
But Graeme Wheeler, governor of the RBNZ, said growth was estimated to have increased by 3 percent in year to the September quarter, consumption was rising and reconstruction in Canterbury will be reinforced by a broader national recovery in construction, particularly in Auckland.
“This will support aggregate activity and start to ease the housing shortage,” Wheeler said.
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