Reserve Bank of New Zealand forecast growth, hold rates

The central bank of New Zealand did not provide any surprises after its policy meeting on Thursday. This helped the kiwi rally against its major counterparts.

The Reserve Bank of New Zealand (RBNZ) decided not to cut the main interest rate and left it at 3.5 percent. The Bank kept a more or less neutral stance and this helped lift the kiwi off five-week lows to rise to $0.7305 right after the rate announcement. The NZD/USD continued to rise after the Tokyo open to edge up to $0.7342.

RBNZ Governor Graeme Wheeler said he is reluctant to join counterparts who have cut rates this year because New Zealand’s economic growth is accelerating and there are signs of a house-price bubble developing in Auckland.

“Our situation is quite different from some of those countries that have changed monetary policy or cut interest rates,” Wheeler said.

“We’ve got an economy that’s growing at 3.25, perhaps 3.5 percent and we’re projecting it to continue to grow at those sorts of rates over the next two years, ” he added.

Wheeler did note however that the currency was still high.

New Zealand was the first developed nation to tighten policy last year. The central bank paused after completing just half its intended rate increases as a strong currency, a weak global environment and falling oil prices sent inflation below the bottom of its 1 percent-to-3 percent target range.

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