Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Wheeler keeps OCR at 2.5 percent , rates to rise 'soon'

Wheeler keeps OCR at 2.5 percent , expects to start hiking rates ‘soon’

By Paul McBeth

Jan. 30 (BusinessDesk) - Reserve Bank governor Graeme Wheeler kept the official cash rate at 2.5 percent, while saying the rate will have to rise soon as inflationary pressures escalate in an economy with “considerable momentum”.

“The bank remains committed to increasing the OCR as needed to keep future inflation near the 2 percent target mid-point,” Wheeler said in a statement. “In this environment, there is a need to return interest rates to more-normal levels. The bank expects to start this adjustment soon.”

While a strong New Zealand dollar was keeping a lid on tradable inflation, “the bank does not believe the current level of the exchange rate is sustainable in the long-run,” he said. The New Zealand dollar dropped as low as 81.97 US cents, from 82.65 cents immediately before the 9am announcement. It was recently trading at 82.10 cents.

Wheeler said inflationary pressures are likely to increase in the next two years, and figures this month showed consumer prices rose at an annual 1.6 percent pace in the December quarter, slightly ahead of expectations.

Last month the Reserve Bank signalled interest rates would start rising in 2014, and the inflation data fuelled market expectations Wheeler might have raised the benchmark rate as early as today. Economists were more circumspect with most picking a March hike, saying a later move would let Wheeler explain his decision in the full monetary policy statement, press briefing, select committee hearing and updated forecasts.

“While we believe a hike today would be entirely justified based on fundamentals, we do not expect the RBNZ to deliver a hike,” Bank of New Zealand strategist Kymberly Martin said in a note before the release. ”Rather, we expect it to remain ‘on hold’ consistent with previous rhetoric, but prepare the market for a 25bps rate hike as early as March.”

In its December forecast track for the 90-day bank bill rate, seen as a proxy for the OCR, the Reserve Bank projected the rate would increase to 2.7 percent in the March quarter of 2014, rising to 3.8 percent by the end of the year, and 4.8 percent by March 2016.

Wheeler said the scale and speed of increases in the OCR would “depend on future economic indicators.”

The country’s “economic expansion has considerable momentum” with annual growth this year expected to continue near a 3.5 percent pace as global demand for New Zealand’s exports fuel high prices, he said.

“While agricultural export prices are expected to come off their peak levels, overall export demand should benefit from improving growth in the global economy,” Wheeler said.

Upbeat consumer and business confidence, rising inward migration, and the Canterbury rebuild and construction in Auckland’s housing market are adding to New Zealand’s growth prospects.

Wheeler was reluctant to lift rates last year to tame booming property markets in Auckland and Christchurch for fear of driving up an already elevated dollar, instead introducing restrictions on low-equity home loans to take riskier demand out of the property market.

Money printing programmes by central banks including the US Federal Reserve, Bank of England, and Bank of Japan has underpinned strength in the kiwi dollar, as the monetary stimulus debased those major currencies.

The Fed today trimmed a further US$10 billion from its monthly asset purchase programme to US$65 billion, while keeping the key rate near zero percent, as the world’s biggest economy continues to recover.

(BusinessDesk)


© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

OceanaGold: Man Killed In Waihi Mine Accident

A 29-year-old man had died following a work place accident at OceanaGold mine, Waihi last night. The man was killed after the front end loader he was in rolled down a slope. The accident happened at approximately 6.30pm on Thursday night. More>>

ALSO:

Constructing Consent: Annual Housing Consents Highest In Over A Decade

More than 29,000 new homes gained building consent in the year to June 2016, up 16 percent from the previous June year, Statistics New Zealand said today. More>>

ALSO:

War Against Weevil For Future Peas: “No Peas, No Weevil” Ban Now In Place In Wairarapa

The Ministry for Primary Industries (MPI) has today placed a ban on growing peas within a specified area and placed controls on moving pea material (seed and untreated pea straw) within, in and out of this area for the next 2 years. More>>

ALSO:

Wood Producers: Crisis In New Zealand Log Supply

New Zealand wood processing leaders held a hui with senior government officials and political leaders in Whangarei yesterday to assess the acute log supply shortage to local mills in Northland. More>>

Consents And Taxes: Trustpower 'Very Disappointed' With Judgement

Trustpower is "very disappointed" with a Supreme Court ruling dismissing its bid to claim tax deductions on $17.7 million of project costs in a case closely watched by large-scale infrastructure developers. More>>

ALSO:

Fruitful Endeavours: Kiwifruit Exports Reach Record Levels

In June 2016, kiwifruit exports rose $105 million (47 percent) from June 2015 to reach $331 million, Statistics New Zealand said today. Overall, goods exports rose $109 million (2.6 percent) in June 2016 (to $4.3 billion). More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news