RBNZ raises OCR to 3.25 per cent
As had been widely tipped, this morning the Reserve Bank of New Zealand increased its Official Cash Rate by 25 basis points to 3.25 per cent.In a statement announcing the quarter per cent rise, the Reserve Bank Governor Graeme Wheeler said New Zealand's economic expansion "has considerable momentum", with GDP estimated to have grown by around 4 per cent in the year to June. "Global financial conditions remain very accommodative and are reflected in low long-term interest rates and narrow risk spreads. Economic growth among New Zealand's trading partners is gradually improving and global inflation remains low," Wheeler said.In NZ, headline inflation also "remains moderate", although inflationary pressures are expected to increase. Continued acceleration in construction in Canterbury and strong net immigration flows are adding to housing and household demand. Business and consumer confidence remains buoyant, as do businesses' reported intentions to invest and to hire.The exchange rate has not yet adjusted to weakening commodity prices, but is expected to do so. The Bank does not believe the exchange rate is sustainable at current levels."In this environment, it is important that inflation expectations remain contained and that interest rates return to a more neutral level. The speed and extent to which the OCR will need to rise will depend on future economic and financial data, and its implications for inflationary pressures," Wheeler said.While house price inflation remains high, the housing market has moderated since late last year when restrictions were applied to high loan-to-value ratio mortgage lending and when mortgage interest rates began rising. By increasing the OCR as needed to keep future average inflation near its 2 per cent target mid-point, the Bank is seeking to ensure that New Zealand's economic expansion can be sustained, Wheeler said.