Wednesday, April 24, 2013

New Zealand holds rate, still sees rate steady through 2013

    New Zealand's central bank held its Official Cash Rate (OCR) steady at 2.5 percent, as expected, and repeated that "at this point" it still expects to keep the rate steady through 2013.
    The Reserve Bank of New Zealand (RBNZ) said economic growth was picking up with consumer spending on the rise and rebuilding after the Canterbury earthquake gaining momentum, while house price inflation is high in some regions despite already elevated prices.
    "The Bank does not want to see financial or price stability compromised by housing demand getting too far ahead of supply," RBNZ Governor Graeme Wheeler warned in the bank's statement.
    On the other hand, fiscal consolidation is constraining demand and drought has lowered agricultural production which has lead to a temporary rise in international dairy prices.
    And the New Zealand dollar "remains overvalued and is higher than projected in March," Wheeler said, adding:
    "Further appreciation has occurred partly in response to the announcement of a substantial quantitative easing programme in Japan. The high New Zealand dollar continues to be a significant headwind for the tradeables sector, restricting export earnings and encouraging demand for imports."

    Last month the International Monetary Fund said the New Zealand dollar, known as the kiwi, was overvalued by around 15 percent and any attempt to devalue it through intervention would be futile because global investors were attracted to the currency as it's a safe place to park money at a time of extreme monetary easing and ultra-low rates in major advanced economies.
     New Zealand's inflation rate was stable at 0.9 percent in the first quarter from the fourth quarter and the RBNZ expects it to remain close to the bottom of its target range this year.
    The RBNZ, which has held its policy rate steady since March 2011, targets annual inflation of 1-3 percent and forecasts that inflation will gradually rise toward the 2 percent midpoint.
    "At this point, we expect to keep the OCR unchanged through the end of the year," Wheeler said, repeating the central bank's policy guidance from March. Last month it also warned that it did not want price stability affected by housing demand getting too far ahead of supply.
    Earlier this month the central bank's deputy governor, Grant Spencer, said the RBNZ would revise its outlook for interest rates if the rise in house prices and expanding credit starts to fuel excessive consumption and inflationary pressures.
    In the fourth quarter of last year, New Zealand's Gross Domestic Product rose by 1.5 percent in the fourth quarter from the third quarter for annual growth of 2.5 percent, up from 2.0 percent in the third quarter.


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