"Because the economy is still in an early recovery phase and momentum is still modest outside of the Canterbury rebuild, interest rate increases have the potential to slow the economy sharply"
- Shamubeel Eaqub, NZIER principal economist
The Reserve Bank of New Zealand will meet on March 12 to assess the domestic economy and make a decision whether to start raising interest rates, becoming the first developed country to do so or to prolong a period of accommodative monetary policy. The majority of analysts believe policymakers will increase its key refinancing rate up to 2.75%, while latest central bank's comments are increasing concerns markets can be disappointed, leading to a massive sell-off of the kiwi.
The domestic economy is recovering from its long and deep economic recession that started in 2007 and after almost seven years of economic stagnation the economic recovery is under way. Official projections are standing for a 3% expansion in 2014. The economy is lifted by stronger consumption, investment as well as surging Canterbury reconstruction. The reconstruction project will contribute to almost 30% of the GDP growth during this year.
According to the New Zealand Institute of Economic Research (NZIER) the RBNZ will increase borrowing costs from 2.5% in March 2014 to 4% by March 2015. However, the central bank will be monitoring not only performance of the domestic economy, but also keep an eye on emerging markets. Nevertheless, the revision of the RBNZ's monetary policy is just a matter of time.
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