NZ OCR expected to remain unchanged to end of the year
(25 April 2013 – New Zealand) As predicted, the Reserve Bank of New Zealand (RBNZ) has held interest rates at 2.5 percent, due to the economy picking up but citing the high dollar and rising house prices a concern.
'At this point, we expect to keep the OCR unchanged through the end of the year,' the central bank said in a statement.
The bank highlighted that the NZ dollar remains 'overvalued' and higher than expected in March.
The exchange rate is about 4 percent higher than the RBNZ predicted in March.
The central bank also pointed out that house price inflation was high 'in some regions' despite prices already being elevated.
House prices are up about 8 percent in the past year, driven by hot markets in Auckland and Christchurch.
RBNZ governor Graeme Wheeler said: 'The outlook for monetary policy remains consistent with that described in the March Monetary Policy Statement.'
He said that despite continued strains in Europe and disappointing data in some countries, global financial market sentiment remained buoyant and the medium-term outlook for New Zealand's overall trading partner GDP growth remained firm.
Wheeler said NZ economic growth had picked up, consumer spending had increased and rebuild activity in Canterbury was gaining momentum.
''House price inflation is high in some regions, despite prices already being elevated. The Bank does not want to see financial or price stability compromised by housing demand getting too far ahead of supply.
'Fiscal consolidation is constraining aggregate demand. In addition, drought has lowered agricultural production and will likely also negatively affect farm output in the coming season. International dairy prices have spiked higher in response to the drought, but these price gains could prove temporary,'' he said.
Wheeler noted that inflation increased 0.9 percent in the year to the 31 March, and said it was expected to remain close to the bottom of the central bank's 1-3 percent target range this year.
''Weak near-term inflation prospects need to be balanced against our projection for inflation to gradually rise towards the 2 percent target midpoint,' he said.
'At this point, we expect to keep the OCR unchanged through the end of the year.'
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