Thursday, 13 March 2014

New Zealand's increased its key interest rate; more on the way

"It is necessary to raise interest rates toward a level at which they are no longer adding to demand" : Graeme Wheeler, governor of the Reserve Bank of New Zealand. 

New Zealand's central bank increased its key interest rate, becoming the first from a major developed nation to exit record-low borrowing costs, and signaled it may remove stimulus faster than previously forecast to contain inflation.

"It is necessary to raise interest rates toward a level at which they are no longer adding to demand," Reserve Bank of New Zealand Governor Graeme Wheeler said in a statement in Wellington after increasing the official cash rate by a quarter percentage point to 2.75 per cent, as forecast by all 15 economists in a Bloomberg News survey. The RBNZ expects to raise the rate by about 2 percentage points over two years, with the pace depending on economic data, Wheeler said.

Soaring dairy prices and the NZ$40 billion ($37.7 billion) rebuild of earthquake-damaged Christchurch are fueling economic growth just as surging housing prices in the nation's biggest city of Auckland stoke concerns of a bubble. The RBNZ today raised its forecasts for inflation, predicting it will reach the 2 per cent midpoint of its target range 18 months sooner than estimated in December. It also lifted its forecast for the 90- day bank bill rate, suggesting borrowing costs may rise more quickly than previously expected.

"With inflation now rising and inflationary pressures building, there is a need to return interest rates to more- normal levels," the central bank said in its Monetary Policy Statement today. "The speed and extent to which the cash rate will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures."

New Zealand's dollar rose after the RBNZ decision. It rose over 85 US cents after trading at 84.65 cents immediately before the statement.


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