Reserve Bank of New Zealand

July 25, 2013

New Zealand’s Official Cash Rate, which has been at 2.5% since right after the South Island earthquake some 2-1/4 years ago, will likely stay at that level for the balance of 2013 according to the latest statement on monetary policy.  In such, Governor Wheeler expresses confidence about the economy:

Growth in the New Zealand economy is picking up and, although uneven, is becoming more widespread across sectors. Consumption is increasing and reconstruction in Canterbury will be reinforced by a broader national recovery in construction activity, particularly in Auckland. This will support aggregate activity and eventually help to ease the housing shortage.

The statement notes pockets of excessive house price inflation and calls the kiwi still “high” despite some recent depreciation.  General inflation is currently low but “expected to trend upwards towards the mid-point of the 1-3 percent target band as growth accelerates over the coming year.”  A policy change is unlikely this year but rate normalization will presumably start next year, and “the extent of the monetary policy response will depend largely on the degree to which the growing momentum in the housing market and construction sector spills over into inflation pressures.”

The statement overall was more hawkish than analysts anticipated and gave the kiwi an unwelcome boost.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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