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THE Reserve Bank of New Zealand has kept its cash rate at 2.5 per cent and expects the rate to remain on hold for the rest of the year.

THE Reserve Bank of New Zealand has kept its cash rate at 2.5 per cent and expects the rate to remain on hold for the rest of the year.

AAp  Herald Sun   21 June 2013

The rate has remained at its record low since March 2011.

Bank governor Graeme Wheeler, in the bank's latest monetary policy statement, said the economy was picking up, but unevenly, the New Zealand dollar remains too high and the Auckland and Canterbury property markets are buoyant.

"Despite having fallen over the past few weeks, the New Zealand dollar remains overvalued," he said, adding that that was continuing to pose problems for the tradable sector.

"Rapid house price inflation persists in Auckland and Canterbury," Mr Wheeler said, reiterating the bank's concern that financial or price stability could be compromised by housing demand getting too far ahead of supply.

Real Estate Institute figures, released on Wednesday, showed national stratified house prices had climbed 8.7 per cent in the year ending May 31, with the number of sales up 7.1 per cent from a year earlier.

The bank expects the economy's annual growth to be around 3.5 per cent by the second half of 2014, and inflation to rise towards the midpoint of the bank's one to three per cent target band.

Consumer prices rose at an annual pace of 0.9 per cent in the first three months of the year, the third quarter in a row where it's been below the central bank's target.

Mr Wheeler said the economy was being driven by increasing consumption and the Canterbury rebuild gathering pace. There was further impetus from residential construction in Auckland.

The bank trimmed 0.5 per cent from its forecast for gross domestic product this year as the impact of the drought hits home.

The central bank expects the 90-day bank bill to start rising in June next year, with a slightly steeper curve starting in 2015, before reaching 4.2 per cent in March 2016.

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