New Zealand interest rates and the value of the dollar rose
yesterday after Reserve Bank governor Graeme Wheeler released
his first Monetary Policy Statement (MPS) and kept the
official cash rate at 2.5%.
The kiwi rose to US82.81c from US82.49c, immediately before
the monetary policy statement was released. The
trade-weighted index rose to 73.84 from 73.68.
Two-year swap rates rose 0.9%.
Mr Wheeler warned that repairs and construction in Canterbury
continued to gather pace and that the housing market was
strengthening, particularly in Auckland.
Lower funding costs for New Zealand banks, along with
increased competition for lending, had seen mortgage rates
''Dampening factors include the Government's fiscal
consolidation and continued cautiousness by households and
businesses in their spending decisions.
''The high New Zealand dollar continues to be a significant
headwind, restricting export earnings and encouraging demand
for imports,'' Mr Wheeler said.
BNZ economist Stephen Toplis said the world had changed now
New Zealand had a central bank governor who was committed to
seeing annual consumer price inflation not only within the
bank's target band but at the mid-point of that band - 2%.
''Governor Wheeler said so when he signed the Policy Targets
Agreement but actions speak louder than words and the actions
of the governor today loudly say that he is very much
determined to make that target stick.''
However, it was not as though Mr Wheeler ''did anything''. In
fact, he did nothing as the bank's projected official cash
rate track was unchanged from the September MPS, Mr Toplis
But that happened despite a recent string of relatively weak
data, a stronger-than-anticipated currency and
weaker-than-expected inflation outcomes.
''In times gone past, a lower inflation track might well have
been accompanied by a lower interest rate projection. That it
didn't happen this time around reflects the fact that the end
point of the inflation track is still 2% - bang on where the
governor wants it,'' Mr Toplis said.
ASB chief economist Nick Tuffley said the Reserve Bank
appeared to be more wary of the strength in housing market
activity in recent months.
While the central bank was mindful of the risks of excessive
house price inflation on consumer price inflation (CPI) and
financial stability, for now it expected the continued focus
by households to pay down debt would mute the flow-on effects
to household spending.
The Reserve Bank also expected fiscal tightening to dampen
demand in the New Zealand economy in coming years, Mr Tuffley
''We have a slightly stronger growth outlook relative to the
Reserve Bank over much of the projection period, largely
reflecting out stronger net export outlook.''
ASB continued to expect the Reserve Bank to keep the OCR on
hold until the September 2014 MPS, but acknowledged the bank
was indicating a rise in the OCR early next year in its
forecasts, he said.