- Reserve Bank of New Zealand
The Reserve Bank of New Zealand kept interest rates unchanged at 3.5%, with a modest inflation pressures allowing the central bank some time for assessment and more gradual rate hikes. The central bank reiterated its stance that the New Zealand Dollar is unjustifiably and unsustainably strong, which is keeping inflation contained. New Zealand's economic growth is running at an annual rate of around 3.5%. The economy's productive capacity is being boosted by high labour force participation, strong net immigration and ongoing investment growth. While dairy prices have declined sharply, domestic demand has kept momentum, bolstered by the persistent consumption and construction activity growth. Economic growth is expected to remain at or above trend through 2016, with unemployment continuing to drop. Subdued inflation pressures suggest the expansion can be sustained for longer than previously estimated with a more gradual hike in interest rates. CPI inflation remains modest, at 1% in 12 months through September, due to weak global inflation, drops in oil prices and high exchange rate.
Threats to the growth outlook include dairy prices, which are expected to rebound in 2015, the overvalued Kiwi Dollar, and the strength of construction activity. Inflation risks include the effect of rising capacity pressures on domestic inflation, the response of house prices to migration inflows, and the impact of lower oil prices.
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