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Reserve Bank of New Zealand leaves OCR at 3.5%, warns on high Kiwi

Published 09/10/2014, 06:34 PM
Updated 09/10/2014, 06:36 PM
RBNZ leaves OCR at 3.5%

Investing.com - The Reserve Bank of New Zealand on Thursday held its official cash at 3.5% as expected, but surprised by stepping up the warning about the strong exchange rate.

The outlook for inflation was revised downwards with the previous estimate it would breach the mid-point of the 1% to 3% target band in June next year pushed out to September 2016.

The New Zealand dollar, while it has fallen somewhat over the past month, has still not adjusted to reflect the 45% fall in global dairy prices since February, the RBNZ said.

"The high exchange rate continues to restrain growth in the traded sectors," said Governor Graeme Wheeler.

"Its current level remains unjustified and unsustainable. We expect further depreciation, which should be reinforced as monetary policy in the U.S. begins to normalize."

Wheeler identified four factors with respect to the timing and extent of future rate rises: how house prices are responding to recent policy changes and near-record net migration; how capacity pressures are driving domestic inflation; business and household inflation expectations and price setting in the current, low inflation, environment; and how the exchange rate is adjusting to export price falls.

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