Reserve Bank holds OCR at 2.5%

Graeme Wheeler
Graeme Wheeler
The Reserve Bank said it had left its official cash rate (OCR) unchanged at 2.5 per cent but left no clues as to when the next tightening cycle would begin.

Market expectations are for the bank to start increasing rates early next year in order to stave off expected inflation pressures.

"The bank will increase the OCR as needed in order to keep future average inflation near the 2 percent target midpoint," Reserve Bank Governor Graeme Wheeler said in a statement.

Westpac economists said the statement was slightly hawkish compared to market expectations but said the main surprise was that there was signal for a January hike.

However, the 90-day interest rate forecast contained in the Reserve Bank's monetary policy statement was revised higher, by eight basis points the March 2014 quarter and by 23 basis points in the March 2015 quarter.

"This implies the RBNZ expects to start hiking in March 2014," Westpac said.

The New Zealand dollar rallied to US82.87c from US0.82.33c in response to the news.

Wheeler said in the Reserve Bank's statement that CPI inflation increased to 1.4 per cent in the September quarter and inflation pressures were projected to increase.

The extent and timing of such pressures would depend largely on movements in the exchange rate, changes in commodity prices, and the degree to which momentum in the housing market and construction activity spilled over into broader cost and price pressures, he said.


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