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UPDATE 3-New Zealand hints at end to pandemic era monetary policy

* RBNZ leaves rates at a record low

* Projects one 25 bps rate rise in Sept 2022

* Sees rate at 1.5% by end-2023

* Kiwi jumps to three-month high, above 73 U.S. cents (Adds Governor Orr’s comments from a press conference, analyst views)

WELLINGTON, May 26 (Reuters) - New Zealand’s central bank held interest rates on Wednesday but hinted at a hike as early as September next year, becoming one of the first advanced economies to signal a move away from the stimulatory settings adopted during the COVID-19 pandemic.

The hawkish stance contrasts with persistently dovish comments from the U.S. Federal Reserve and the neighbouring Reserve Bank of Australia, which has said there would be no rate rises until 2024 at the earliest.

The Reserve Bank of New Zealand (RBNZ) held rates at a record low 0.25%, but said it sees at least one 25 basis point rate hike by September 2022.

It projected the official cash rate (OCR) would reach 1.5% by the end of 2023 and 1.78% by the end of 2024, underscoring expectations that recent positive data will lead policymakers to tighten rates sooner rather than later.

RBNZ Governor Adrian Orr emphasised that more patience was needed on policy and that OCR projections were “highly conditional” to the economy panning out as expected.

“We are talking about the second half of next year. Who knows where we will be by then,” he told a press conference following the decision.

But markets paid little attention to this warning, sending the New Zealand dollar up by 1% to as high as $0.7308, a level not seen since Feb. 26.

“The Reserve Bank of New Zealand is calling time,” said ANZ Chief Economist Sharon Zollner.

“Given downside risks and challenges, the Bank still believes that ongoing strong stimulus is necessary, but no longer indefinitely,” she added.

New Zealand joins Canada and Norway in explicitly outlining an exit from current crisis-mode central bank settings as a global vaccine rollout lifts the prospect of recovery in the world economy.

The RBNZ retained its large scale asset purchase (LSAP) programme but acknowledged the scheme could not reach its NZ$100 billion ($72.18 billion) limit by its June 2022 term end. It also left the Funding for Lending Programme (FLP) unchanged.


New Zealand’s success in curbing the coronavirus pandemic allowed it to reopen its domestic economy and establish a safe “travel bubble” with neighbouring Australia, boosting employment and consumer spending.

Growth has also been helped by a jump in the prices of key commodities, particularly dairy.

“Confidence in the outlook is rising as the more extreme negative health scenarios wane given the vaccination progress globally,” Orr said.

The RBNZ, however, was in no hurry to raise rates until inflation and employment targets are met, he added, pointing out that domestic economic recovery was still uneven.

Citibank said in its note that while the economy remains on a recovery path, ongoing uncertainties around the pandemic such as vaccinations, border closures and lockdowns could persist into 2022.

“Thus a rate hike in 22H2 remains a risk, but our base case is still for a hike in Q1 2023,” Citibank said in a note.

Historically low interest rates have fired up New Zealand’s housing market sending home prices to unaffordable levels.

Under pressure, Prime Minister Jacinda Ardern’s Labour-led government launched measures in March targeted at taxing property investors while the RBNZ restored its mortgage lending curbs.

“House prices will slow significantly and soon,” Orr said when asked about affordability, adding that new measures may eventually bring quarterly house price growth to nearly zero. ($1 = 1.3854 New Zealand dollars) (Reporting by Praveen Menon, Renju Jose, Wayne Cole and Swati Pandey; Editing by Sam Holmes)