The Reserve Bank today increased the Official Cash Rate (OCR) by 25 basis points to 3.5%.
New Zealand’s economy is expected to grow at an annual pace of 3.7% over 2014. Global financial conditions remain very accommodative and are reflected in low interest rates, narrow risk spreads, and low financial market volatility. Economic growth among New Zealand’s trading partners has eased slightly in the first half of 2014, but this appears to be due to temporary factors.
Construction, particularly in Canterbury, is growing strongly. At the same time, strong net immigration is adding to housing and household demand, although house price inflation has moderated further since the June Statement.
Over recent months, export prices for dairy and timber have fallen, and these will reduce primary sector incomes over the coming year. With the exchange rate yet to adjust to weakening commodity prices, the level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall.
Inflation remains moderate, but strong growth in output has been absorbing spare capacity. This is expected to add to non-tradables inflation. Wage inflation is subdued, reflecting recent low inflation outcomes, increased labour force participation, and strong net immigration.
It is important that inflation expectations remain contained. Today’s move will help keep future average inflation near the 2% target mid-point and ensure that the economic expansion can be sustained. Encouragingly, the economy appears to be adjusting to the monetary policy tightening that has taken place since the start of the year. It is prudent that there now be a period of assessment before interest rates adjust further towards a more-neutral level.
The speed and extent to which the OCR will need to rise will depend on the assessment of the impact of the tightening in monetary policy to date, and the implications of future economic and financial data for inflationary pressures.
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That saves disadvantaging other regions that do not enjoy/suffer from the effects of such huge urban demands?
Secondly, if interest rates in NZ are raised higher, then the overseas demand equation inevitably places an increasing demand on our dollar, which has the resulting effect of keeping our dollar exchange rate higher..!
Lastly, if the powers above only realised the foolishness in choosing to "sell" rather than 99 year lease our NZ land to overseas buyers, then there would be an adjustment to the worldwide attitudes that foreigners have toward land purchasing abilities here in NZ.
after all, NZ'ers are not able to purchase land in China for example, however, they are willing to lease land to foreigners?
there is much more profit over time from leasing versus selling any asset!
Surely it is better as an image for us NZ'ers to be considered 'sensible'...versus 'dumb?'
After all, it is also election year so vote accordingly? Michael Donovan