RBNZ keeps rate steady

The Reserve Bank of New Zealand stayed pat on its own key interest rate, also reiterating it will keep borrowing costs at record low this year, citing subdued growth in consumer prices that has been held down by the overvalued domestic currency. Soon after the report the kiwi climbed as market participants increased bets that RBNZ Governor Graeme Wheeler will raise the benchmark interest rate as early as January. Wheeler also stressed out that the pace of future interest-rate increases will depend on the impact of the booming housing market, which is likely to weigh on prices. Confronted with a constantly rising property prices that threatens financial stability, and affects the currency that dents exports, the RBNZ has opted to turn to other tools of monetary policy, rather than introducing any shifts in borrowing costs. Currently New Zealand's officials are working on a plan to limit the amount of home lending that domestic banks can undertake at deposits of less than 20% of a property's value. Another major concern remains the inflation rate, which remains subdued at around 0.7%, far below the RBNZ's target range of 1-3%, and according to the nation's authorities it is expected to trend upwards through the forecast period, as economic growth will gain momentum over the coming year. In addition to that, even taking into account the fact that the New Zealand Dollar has declined about 7% versus the U.S. Dollar since April, the central bank still considers the currency overvalued.