New Zealand’s interest rates are to rise to 2.75 percent, the Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler has announced. New Zealand’s economic growth has gained momentum in recent months, with the bank estimating that GDP has grown 3.3 percent in the year up to March.
The increase is supposed to be the first in a set of rate rises as the RBNZ aims to keep inflation near its two percent target midpoint. “With inflation now rising and inflationary pressures building, there is a need to return interest rates to more-normal levels,” the Central Bank said in its Monetary Policy Statement, stressing that rate rises “will depend on economic data and our continuing assessment of emerging inflationary pressures.” Surging house prices in the nation’s largest city, Auckland, have led to concerns of a bubble and have added to the country’s inflationary worries.
The FT is reporting that the rate may be increased by a total of 125 basis points in 2014, depending on economic data.
The growth of the economy in New Zealand has been driven by soaring dairy prices and also the $40bn rebuild of Christchurch, the city damaged in 2011’s earthquake. Demand for milk, particularly in China, has made New Zealand the world’s principal milk supplier and has stoked the flames of growth in the country’s $175bn economy. Official figures show that the country maintained a three-month trade surplus in January, as exports to China grew 45 percent year-on-year from 2013.
Demand for milk, particularly in China, has made New Zealand the world’s principal
milk supplier
The news comes as the US Federal Reserve is not expected to raise interest rates until the third quarter of next year. The US central bank cut rates to a record low in December 2008 and promised to keep them there until the economy was on the mend. Meanwhile, the Bank of England Governor Mark Carney this week stressed that interest rates rises in the UK would have to be gradual to avoid choking the economy.
Wheeler said that “growth is gradually increasing in New Zealand’s trading partners” and that “global financial conditions continue to be very accommodating” for the country.
