(Adds details, RBNZ governor's quotes, comment)
* OCR raised 25 bp to 3.50 pct, as expected
* RBNZ: Appropriate to pause and assess impact of
tightening, more rises needed
* RBNZ: NZ dlr high and unsustainable, could have big fall
* NZ dollar falls, interest rate futures rally
By Gyles Beckford
WELLINGTON, July 24 New Zealand's central bank
raised interest rates to the highest level in more than 5 years
on Thursday but said it would now take a breather as it looked
at the impact of its tightening and watched inflation in the
The Reserve Bank of New Zealand lifted its official rate by
25 basis points to 3.50 percent, as expected, the fourth
consecutive rise in as many meetings.
It said rates would need to return to a more neutral level,
but the economy appeared to have slowed amid falling commodity
prices and moderate inflation.
"It is prudent there now be a period of assessment before
interest rates adjust further to a more-neutral level," RBNZ
Governor Graeme Wheeler said in a statement.
He said the speed and extent of future rises would depend on
the impact of its 100 basis points of tightening since March,
and the strength of data.
The bank's forecasts in June implied the cash rate reaching
3.75 percent by the end of the year, two additional 25 basis
point rate increases this year, and a steady pace through 2015.
"Our view remains unchanged, we think the Reserve Bank is on
hold until December, and they will start raising rates again
then, but at a far more gradual pace," said ASB Bank chief
economist Nick Tuffley.
Markets have scaled back expectations of rate rises in the
next 12 months to 68 basis points from 92 basis points earlier
this month after benign inflation data.
A Reuters poll before the latest statement has a consensus
view that the RBNZ will pause until December before resuming
The New Zealand dollar fell as low as $0.8609
from around $0.8703. Interest rate futures <0#NBB:>
rallied, pushing their implied yields lower.
The bank said the economy was expected to grow 3.7 percent
this year, although trading partner growth looked to have
It said the sharp fall in some commodity prices would feed
through to primary sector incomes, but also meant the New
Zealand dollar was unsustainably and unjustifiably high and
faced a potential significant fall.
The kiwi has come off its highs in the past month, but the
trade-weighted currency basket,the RBNZ's preferred
currency measure, has remained about 1 percent above the bank's
The RBNZ said inflation was moderate, house price inflation
has slowed and wages were subdued, but spare capacity was being
used up and strong migration gains were adding to demand.
(Reporting by Gyles Beckford; Editing by Dan Grebler)