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13-03-2014, 08:12 AM
One of the earliest to see the sunrises
NZ raises rates by 25bp to 2.75pc on back of 'rock-star economy'
AFP MARCH 13, 2014 8:20AM
NEW Zealand's central bank lifted the official cash rate (OCR) 0.25 points to 2.75 per cent on Thursday, ending a three-year interest rate freeze imposed after the devastating Christchurch earthquake.
In a widely anticipated move, the Reserve Bank of New Zealand said rates no longer needed to be kept at a record low of 2.5 per cent because the economy's expansion "has considerable momentum".
"By increasing the OCR as needed to keep future average inflation near the 2.0 per cent target midpoint, the bank is seeking to ensure that the economic expansion can be sustained," governor Graeme Wheeler said.
Mr Wheeler signalled today's rate rise was unlikely to be the last as the central bank looks to keep a lid on inflation.
"The speed and extent to which the OCR will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures," he said.
He added: "It's also fair to say that over the next few months we will see further interest rate increases."
The 6.3-magnitude Christchurch earthquake in February 2011 levelled much of New Zealand's second largest city, claiming 185 lives and prompting the Reserve Bank to slash rates in an emergency move to cushion the economy.
Since then, New Zealand has experienced strong growth thanks to a booming housing market, growing demand for its primary products such as dairy, and a $NZ40 billion ($37.9 billion) program to rebuild the South Island city.
But the massive construction spending has fuelled inflation, potentially sending the cost of living beyond the bank's 1.0 per cent to 3.0 per cent target band.
Prime Minister John Key suggested earlier this week that a rise in interest rates represented a vote of confidence in the economy from Mr Wheeler in the post-quake recovery.
"It means that he is confident the economy is rebounding and rebounding strongly - both the Treasury and the Reserve Bank now have growth sitting at around four per cent," he said.
Capital Economics analyst Gareth Leather said the hike made New Zealand the first advanced economy to lift interest rates since 2012.
He expected the OCR to rise to 3.25 per cent by the end of the year, noting that most economists were tipping it would reach 3.5 per cent.
New Zealand's gross domestic product expanded 2.6 per cent in the 12 months to December and analysts expect 3.5-4.0 per cent growth this year.
On the share market, the benchmark NZX-50 reached record highs last week on the back of a strong earnings season, while consumer and business confidence are both on the rise.
The optimistic outlook prompted HSBC's chief economist for Australasia Paul Bloxham earlier this year to dub New Zealand "the rock star economy for 2014".
He said a major factor behind the assessment was China's enormous demand for New Zealand dairy products, which shows no sign of abating despite an infant formula contamination scare last year.
The Australian dollar fell to a two-thirds of a New Zealand cent following the rate rise.
At 7.23am AEDT the Aussie was trading at 105.53 New Zealand cents, down from 106.18 cents just before the RBNZ decision was announced.
The New Zealand dollar also rose against most other currencies.
Westpac New Zealand senior market strategist Imre Speizer said he expected the Australian dollar to further weaken against the New Zealand dollar because while the RBNZ is increasing its cash rate, further cuts to the Reserve Bank of Australia's cash rate are possible.
"Our base case is the 102 New Zealand cents to 105 New Zealand cents area should mark the bottom of the cycle later this year, but we wouldn't entirely rule out 100 New Zealand cents," he said.
NZ raises rates by 25bp to 2.75pc on back of 'rock-star economy'
AFP MARCH 13, 2014 8:20AM
NEW Zealand's central bank lifted the official cash rate (OCR) 0.25 points to 2.75 per cent on Thursday, ending a three-year interest rate freeze imposed after the devastating Christchurch earthquake.
In a widely anticipated move, the Reserve Bank of New Zealand said rates no longer needed to be kept at a record low of 2.5 per cent because the economy's expansion "has considerable momentum".
"By increasing the OCR as needed to keep future average inflation near the 2.0 per cent target midpoint, the bank is seeking to ensure that the economic expansion can be sustained," governor Graeme Wheeler said.
Mr Wheeler signalled today's rate rise was unlikely to be the last as the central bank looks to keep a lid on inflation.
"The speed and extent to which the OCR will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures," he said.
He added: "It's also fair to say that over the next few months we will see further interest rate increases."
The 6.3-magnitude Christchurch earthquake in February 2011 levelled much of New Zealand's second largest city, claiming 185 lives and prompting the Reserve Bank to slash rates in an emergency move to cushion the economy.
Since then, New Zealand has experienced strong growth thanks to a booming housing market, growing demand for its primary products such as dairy, and a $NZ40 billion ($37.9 billion) program to rebuild the South Island city.
But the massive construction spending has fuelled inflation, potentially sending the cost of living beyond the bank's 1.0 per cent to 3.0 per cent target band.
Prime Minister John Key suggested earlier this week that a rise in interest rates represented a vote of confidence in the economy from Mr Wheeler in the post-quake recovery.
"It means that he is confident the economy is rebounding and rebounding strongly - both the Treasury and the Reserve Bank now have growth sitting at around four per cent," he said.
Capital Economics analyst Gareth Leather said the hike made New Zealand the first advanced economy to lift interest rates since 2012.
He expected the OCR to rise to 3.25 per cent by the end of the year, noting that most economists were tipping it would reach 3.5 per cent.
New Zealand's gross domestic product expanded 2.6 per cent in the 12 months to December and analysts expect 3.5-4.0 per cent growth this year.
On the share market, the benchmark NZX-50 reached record highs last week on the back of a strong earnings season, while consumer and business confidence are both on the rise.
The optimistic outlook prompted HSBC's chief economist for Australasia Paul Bloxham earlier this year to dub New Zealand "the rock star economy for 2014".
He said a major factor behind the assessment was China's enormous demand for New Zealand dairy products, which shows no sign of abating despite an infant formula contamination scare last year.
The Australian dollar fell to a two-thirds of a New Zealand cent following the rate rise.
At 7.23am AEDT the Aussie was trading at 105.53 New Zealand cents, down from 106.18 cents just before the RBNZ decision was announced.
The New Zealand dollar also rose against most other currencies.
Westpac New Zealand senior market strategist Imre Speizer said he expected the Australian dollar to further weaken against the New Zealand dollar because while the RBNZ is increasing its cash rate, further cuts to the Reserve Bank of Australia's cash rate are possible.
"Our base case is the 102 New Zealand cents to 105 New Zealand cents area should mark the bottom of the cycle later this year, but we wouldn't entirely rule out 100 New Zealand cents," he said.