By Dow Jones Business News,
January 29, 2014, 03:33:00 PM EDT
By Rebecca Howard
WELLINGTON, New Zealand--New Zealand's central bank left interest rates on hold Thursday amid some lingering concerns
about the global economy, but clearly signaled rate increases are imminent as the domestic economy heats up and
inflationary pressures loom.
"There is a need to return interest rates to more normal levels. The bank expects to start this adjustment soon,"
Reserve Bank Governor Graeme Wheeler said in a statement. Of the 13 economists surveyed by the Wall Street Journal, 10
had expected the central bank to leave rates on hold at 2.5% Thursday, the level they have been at for nearly three
Mr. Wheeler noted that New Zealand's economic expansion has "considerable momentum" as prices for the country's export
commodities remain very high, consumer and business confidence is strong and the rapid rise in net inward migration over
the past year has added to consumption and housing demand.
While some economists had said that Mr. Wheeler should be raising rates at this meeting given the domestic economic
backdrop, the central bank governor sounded a note of caution about the global environment.
While he said that overall export demand for New Zealand products should benefit from improving growth in the global
economy, "improvements in the major economies have required exceptional monetary accommodation and there remains
uncertainty about the timing of the withdrawal of this stimulus and its effects, especially on emerging market
However, he also noted that inflation is heating up, with the consumer price index rising 1.6% on the year in the
December quarter, moving closer to the midpoint of the central bank's target range of 1%-3%. Mr. Wheeler said "
Inflationary pressures are expected to increase over the next two years" and the central bank remains committed to
increasing interest rates as needed to keep future average inflation near the 2% target mid-point.
"The scale and speed of the rise in the OCR (official cash rate) will depend on future economic indicators," he said.
Write to Rebecca Howard at firstname.lastname@example.org
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