Third Interest Rate Hike since March by Reserve Bank of New Zealand

June 12, 2014

In a widely expected move, New Zealand’s Official Cash Rate was lifted from 3.0% to 3.25%.  Similar moves were also announced on March 15 and April 24.  In light of a stronger-than-desired exchange rate, it was thought, however, that the accompanying remarks by Governor Wheeler might signal a pause in tightening, but that was not the case.  In a quarterly review, remarks about economic growth were rather upbeat: “Spending on construction continues to accelerate, net immigration flows have increased sharply over the past year, and high prices for New Zealand’s commodity exports have led to strong growth in export incomes. These factors, together with an extended period of low interest rates, are supporting the continued recovery in domestic demand.”  GDP is projected to expand 3.3% between 4Q13 and 4Q14.  This exceeds trend and, in time, should generate some demand-pull pressure on prices.  At the same time, tradeable goods price inflation has been suppressed by the strength of the kiwi, which hasn’t fallen as much as lower export commodity prices would warrant according to RBNZ officials.  It is there view that the kiwi will drop further, and the baseline forecast suggests 75-100 basis points of further rate hikes this year.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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