WELLINGTON, April 24 New Zealand's central bank
raised interest rates on Thursday and signalled that it would
keep tightening monetary policy in the coming months as the
central bank tames inflation pressures which have been brewing
as the country's economy strengthens.
The Reserve Bank of New Zealand lifted its official rate by
25 basis points to 3.0 percent in a widely expected move,
continuing its tightening path mapped out last month, when the
central bank took the lead among developed nations in raising
rates in the current cycle.
"It is important that inflation expectations remain
contained. To achieve this it is necessary to raise interest
rates towards a level at which they are no longer adding to
demand," RBNZ Governor Graeme Wheeler said in a statement.
"The speed and extent to which the OCR will be raised will
depend on economic data and our continuing assessment of
emerging inflationary pressures, including the extent to which
the high exchange rate leads to lower inflationary pressures."
Thursday's move takes rates to a three-year high, and the
RBNZ stuck to its guidance that more rate hikes lay ahead, while
adding that it would assess the extent to which a historically
strong New Zealand dollar lowers inflationary pressures.
The RBNZ has said it expects to raise rates by roughly 200
basis points through late 2015 as post-earthquake reconstruction
in the Canterbury region, a booming housing market, high terms
of trade, and increasing migration to drive the economy.
The RBNZ said it estimated that the economy grew by 3.5
percent in the year to March. It has forecast growth of 3.0
percent for 2014, up from 2.3 percent in 2013.
The New Zealand dollar gained around a third of a
cent to a high of $0.8621 after the announcement, but interest
rate futures <0#NBB:> were barely moved.
Analysts said there were no surprises from the RBNZ, which
looks to have its focus on getting the jump on future inflation.
"We are forecasting further hikes of 25 basis points each
in June, July, and December this year - although we admit that
the July hike is a very close call," said Westpac economists in
Markets are pricing 109 basis points of hikes in the next
12 months, but a sedate reading of consumer inflation and
a stubbornly strong currency have raised speculation that the
RBNZ may take a steady approach to rate rises.
Data last week showed annual inflation at 1.5 percent in the
first quarter, softer than expected and below the RBNZ's target
mid-point around 2 percent, bolstering the view that further
rises will be gradual.
Meanwhile, the New Zealand dollar has rallied since
the RBNZ began raising rates last month, lifting the currency to
a life-time high against a currency basket and around 2.0
percent higher than the central bank's forecast.
Lower imported price pressures resulting from a continuously
strong "kiwi" dollar may curb the need to take rates to 3.75
percent by year-end, the median rate in the Reuters poll taken
ahead of Thursday's policy decision.
New Zealand is also facing an ongoing fall in global prices
for dairy products, the country's largest export product, which
could lower the country's terms of trade from a 40-year high hit
late last year and also take some heat off the RBNZ to tighten
down the line.
(Reporting by Naomi Tajitsu)