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House price inflation worries RBNZ

31 January 2013 6:14PM
The Reserve Bank of New Zealand has held the Official Cash Rate at 2.5 per cent, as expected, and given no guidance on when or in what direction it might next move the OCR.However, new Reserve Bank Governor Graeme Wheeler noted that house price inflation had increased and the bank was watching both house prices and household credit growth closely. He also said the New Zealand dollar was over-valued and hitting exporters."The bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply," Wheeler said in a statement on the bank's monetary policy decision, which is made every six weeks or so.The bank said inflation remained subdued and was currently below the bottom of the Reserve Bank's inflation target range.  "This mainly reflects the impact of the overvalued New Zealand dollar. The high currency is directly suppressing inflation on traded goods, and is undermining profitability in export and import competing industries. At the same time, the labour market remains weak and fiscal consolidation is dampening growth."The bank also noted lower bank funding costs and that retail interest rates for households and firms had fallen somewhat.The bank made no comment about its current work on building a macro-prudential tool kit, including loan to value ratio limits.

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