The Reserve Bank has left its official cash rate unchanged at
2.5 per cent, which was in line with market expectations, but
said it was watching house price inflation closely.
Reserve Bank Governor Graeme Wheeler said global growth is
set to recover this year with economic indicators improving
for many of New Zealand's trading partners.
He said in a statement global financial market sentiment was
positive, contributing to lower bank funding costs and to
some reduction in the interest rates faced by households and
Domestically, recent data on business confidence and
construction activity suggested economic growth was
recovering from the softness seen through the middle of last
year, he said.
"The Canterbury rebuild is gathering momentum and its impact
will be felt more broadly in incomes and domestic demand," he
House price inflation had increased "and we are watching this
and household credit growth closely".
He said the bank did not want to see financial stability or
inflation risks accentuated by housing demand getting too far
ahead of supply.
Inflation remains subdued and is currently just below the
bottom of the Reserve Bank's inflation target range, mainly
reflecting the impact of the strong New Zealand dollar.
"The high currency is directly suppressing inflation on
traded goods, and is undermining profitability in export and
import competing industries," Wheeler said. "At the same
time, the labour market remains weak and fiscal consolidation
is dampening growth."
Overall, the bank expected economic growth to strengthen over
the coming year, reducing spare capacity and bringing
inflation slowly back towards the two per cent target
Annual inflation was just 0.9 per cent the December 2012
year, according to Statistics NZ.