"OCR increases will likely be required next year. The extent and timing of the rise in policy rates will depend largely on the degree to which the momentum in the housing market and construction sector spills over into broader demand and inflation pressures."
-Graeme Wheeler, New Zealand Reserve Bank Governor
New Zealand currency hit the highest- level in one month against the U.S. counterpart on Thursday as the Reserve Bank of New Zealand made no adjustments to its monetary policy, leaving the key rate at 2.5% and pointed at possible tightening in policy next year. The RBNZ Governor Graeme Wheeler said that additional stimulus may be needed to curb the inflation that is expected to hover around 2% in 2014 in case housing pressure spill into consumer prices. The Official Cash Rate has been held at a half-century low of 2.5% since March 2011, when policymakers cut the refinancing rate after the Canterbury earthquake struck.
The inflation rate stood at 0.7% in March, sitting below the central bank's target range of 1-3%, partly reflecting the high currency rate. However, Wheeler stressed out inflation rate is likely to move toward the midpoint of the target range as economic growth strengthens. The economy expanded 2.5% in the year to March, slightly slower than it was expected as it was stymied by the effects of the severe summer drought that became a drag on agricultural sector. Nevertheless, New Zealand's economy is likely to accelerate to 3% by the September quarter, and gain momentum further by the middle of the next year, reaching 3.5%.
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