• JUser: :_load: Unable to load user with ID: 82
Cuzz Media

Cuzz Media

Cuzz Media is part of t...



In late 2008 we became vi...

Banking In Australia Today

Banking In Australia Today

Visit Banking in Austra...

Donate Please

Donate Please

At the moment we need y...

Prev Next

New Zealand Reserve Bank lifts rates for second straight meeting

New Zealand Reserve Bank lifts rates for second straight meeting
The Reserve Bank of New Zealand has raised interest rates for the second month in a row, in a foretaste of what may be to come for Australia within the next year.

The RBNZ raised its overnight cash rate target by 25 basis points to 3 per cent, as was almost universally expected by market economists.

Only two months ago, New Zealand's cash rate was the same as Australia's at lows of 2.5 per cent, but rising inflation, strong dairy prices and a housing boom have all combined to persuade the central bank that rates need to be higher to keep inflation in check.

The rate rises are unlikely to end there, with most analysts expecting two or more further increases this year to take the cash rate to at least 3.5 per cent by the end of 2014.

The RBNZ's governor Graeme Wheeler says New Zealand's economy is likely to be growing at about 3.5 per cent per annum, ahead of Australia's most recent growth reading of 2.8 per cent in the December quarter.

Like Australia, much of New Zealand's economic bounce has come from the residential property sector.

"Domestically, the extended period of low interest rates and strong growth in construction sector activity are supporting the recovery," Mr Wheeler said in his post-meeting statement.

"Net immigration continues to increase, boosting housing and consumer demand."

The difference in growth between the two sides of the Tasman, aside from New Zealand's strong dairy industry, appears to be the level of consumer and business confidence, which is high over the ditch but modest and generally falling in Australia.

New Zealand's rate rises also come despite so-called macroprudential efforts to slow down that nation's surging housing market, which the RBNZ says are having an effect.

"There has been some moderation in the housing market. Restrictions on high loan-to-value ratio mortgage lending are easing pressure, and rising interest rates will have a further moderating influence," Mr Wheeler observed.

"However, the increase in net immigration is adding to housing demand."

Many local observers have noted New Zealand's use of regulatory limits on home lending to take some heat out of a housing boom in light of the rapid rise in Melbourne and, particularly, Sydney home prices over the past year to 18 months.

Some economists and property observers argue that, as in New Zealand, macroprudential measures on mortgage lending could delay the need for Australia's Reserve Bank to raise interest rates if key housing markets continue to grow at a financially risky pace.

Yesterday's lower than expected Australian inflation figures have taken further pressure off the RBA to consider lifting rates (although it is worth noting that New Zealand's inflation rate of 1.5 per cent is almost half of Australia's 2.9 per cent), and the combination of that and the RBNZ's latest move has seen the New Zealand dollar rise against the Aussie.

At 9:44am (AEST) an Australian dollar was buying 107.85 NZ cents.

As with Australia's central bank, but to a far greater extent, the RBNZ is treading a delicate balance between managing monetary policy to cool parts of the domestic economy, but doing so without causing the currency to rise so much that it kills export industries.

Author : Michael Janda


Leave a comment

Make sure you enter all the required information, indicated by an asterisk (*). HTML code is not allowed.

back to top


Major Topics

Helpful Resources


About Us