RBNZ rises rates to 2.75%, starts adjustment

FXStreet (Córdoba) - The Reserve Bank of New Zealand rose the key interest rate, the OCR by 25 basis points to 2.75% as expected. It was the first move for the central bank on interest rates in two year. RBNZ’s governor, Graeme Wheeler will speak later.

According to the statement the economy has momentum and growth is becoming broad-based. The increase in demand has been absorbing spare capacity “and inflationary pressures are becoming apparent, especially in the non-tradables sector”.

“While headline inflation has been moderate, inflationary pressures are increasing and are expected to continue doing so over the next two years. In this environment it is important that inflation expectations remain contained. To achieve this it is necessary to raise interest rates towards a level at which they are no longer adding to demand”, RBNZ noted in its statement, affirming that the adjustment starts today.

The speed and extent of interest rates will depend on economic data and inflationary pressures. “By increasing the OCR as needed to keep future average inflation near the 2 percent target mid-point, the Bank is seeking to ensure that the economic expansion can be sustained”, concluded the statement.

Regarding the exchange rate the bank does not believe that the current level is sustainable in the long run.