New Zealand: Central Bank maintains interest rate, signals that rate increases are on the horizon
January 29, 2014
At its 30 January monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) left the official cash rate (OCR) unchanged at 2.50%, where it has been for nearly three years. The decision was broadly in line with market expectations, although some market analysts are starting to expect that a 25 basis-point hike will come soon.
In its statement, the Central Bank pointed out that New Zealand's economic expansion "has considerable momentum" and that confidence among businesses and consumers remains strong. In addition, the Bank underlined that the rapid increase in immigration over the past year has also provided a boost to consumption and investment. Regarding price developments, the Central Bank recognized that, although the strong exchange rate has helped to contain inflation, inflationary pressures are beginning to appear. Construction costs are increasing and prices for export commodities remain high.
In its Monetary Policy Statement (MPS), the RBNZ gave what may have been a signal that the OCR will increase in March, stating that, "inflationary pressures are expected to increase over the next two years. In this environment, there is a need to return interest rates to more normal levels. The Bank expects to start this adjustment soon."
The majority of FocusEconomics panelists expect the Bank to raise the Official Cash Rate this year, with an average forecast of 3.38%. For 2015, participants see interest rates ending the year at 4.00%.
Author: Ricardo Aceves, Senior Economist