(Repeats to screen clients)
* RBNZ holds rates at 2.5 pct, signals March rate rise
* C.bank poised to lead developed countries in rate rise
* Reuters poll: All 15 respondents see March tightening
By Naomi Tajitsu
WELLINGTON, Jan 30 New Zealand's central bank on
Thursday gave its clearest indication yet that it will raise
interest rates in March, a sign of confidence that the economy
will continue its strong recovery despite renewed turmoil
gripping emerging markets.
The Reserve Bank of New Zealand, which has repeatedly said
that rate rises were on the way in 2014, held its official cash
rate at a record low 2.5 percent, the level it has been at for
nearly three years.
But central bank chief Graeme Wheeler said that monetary
tightening was coming "soon" to quell rising price pressures
triggered by a buoyant economy, likely putting New Zealand on
track to become the first developed country to raise interest
rates in the current cycle.
"While headline inflation has been moderate, inflationary
pressures are expected to increase over the next two years,"
Wheeler said in a statement accompanying the on-hold decision
which was correctly picked by a majority of economists.
"In this environment, there is a need to return interest
rates to more normal levels. The Bank expects to start this
Most economists anticipate the New Zealand tightening cycle
will begin in March, after a string of strong data showed the
$170 billion economy is growing faster than the RBNZ's forecast,
while inflation was approaching its 2 percent target.
The markets, which had priced in a near 50 percent chance
of a rate rise this week, sold off the New Zealand dollar
almost a full U.S. cent to a low of $0.8175.
Interest rate futures <0#NBB:> rose as much as 9 points,
while government bonds also rallied, pulling back
from losses seen in past sessions when debt prices fell on
speculation of an early rate rise.
New Zealand's intentions for raising rates contrast with
central banks in Turkey, India and South Africa, which have
raised rates this week to stem a precipitous slide in their
"If they raised rates today, they may have gotten tied up
with emerging central banks which have been raising rates to
shore up their currencies," said Annette Beacher, head of Asia
Pacific Research at TD Securities in Singapore.
"But the RBNZ is looking to raise rates for completely
different reasons ... by holding rates, they've managed to
distance themselves from what's going on in emerging economies."
NZ ECONOMY ABOVE EMERGING TURMOIL
Economists noted the RBNZ sharpened the tone of its brief
statement to all but suggest the rate-hike cycle will start in a
few weeks time.
"The RBNZ have given a clear hint that it's all but certain
that it's going to raise rates in March," ASB Bank chief
economist Nick Tuffley said.
A pioneer of inflation targetting, the RBNZ is aiming to
stem price risks as growth speeds up on the back of earthquake
rebuilding projects in the Canterbury region, housing
construction in Auckland, and high global commodity prices.
The RBNZ said it expected annual growth in 2014 to continue
around the 3.5 percent seen in the year to September, making it
one of the strongest growing developed economies.
A Reuters poll taken after the decision showed all 15
economists see a rate rise in March.
That would place the RBNZ well ahead of other major central
banks in its tightening cycle, given than many others continue
to offer monetary stimulus to boost their economies.
The U.S. Federal Reserve, which on Wednesday stuck to its
plans to gradually taper its massive bond-buying programme, is
some way off from raising interest rates, while the Bank of
Japan has another round of quantitative easing. The Reserve Bank
of Australia is expected to keep rates low for much of this
Wheeler said that uncertainties around the timing and the
impact of any withdrawal of monetary stimulus measures by major
central banks was having an impact on emerging economies, many
of which have seen their currencies plummet in the past week.
In contrast with recent weakness in many emerging
currencies, the New Zealand dollar has been supported
around historically high levels on rate rise expectations and
optimism about the country's economy.
Wheeler said a strong currency was dampening inflation
pressures, but added that current levels were unsustainable in
the long run.
(Additional reporting by Gyles Beckford; Editing by Shri