Reserve Bank has raised its benchmark interest rate to 3 percent in a
widely expected move that is likely to push up mortgage rates.
rise in the Official Cash Rate (OCR) was the second increase in six
Graeme Wheeler said in a statement on Thursday the economy had
considerable momentum, led by strong growth in the construction
sector and high dairy prices. Net immigration continued to rise,
boosting housing and consumer demand.
Wheeler said inflationary pressures were increasing and were expected
to continue doing so over the next two years.
Reserve Bank upgraded its estimate of GDP growth for the year to
March to 3.5 percent. The central bank is seeking to keep inflation
near the middle of its 1-3 percent target band, which it said will
ensure the economic expansion can be sustained.
speed and extent to which the OCR will be raised will depend on
economic data and our continuing assessment of emerging inflationary
pressures, including the extent to which the high exchange rate leads
to lower inflationary pressure," Mr Wheeler's statement said.
the statement added that the bank did not believe the current level
of the currency was sustainable.
OCR increase is likely to be reflected in higher borrowing costs for
households and some analysts say mortgage rates could rise to 8
percent in the next couple of years.
central bank last increased the Official Cash Rate on 13 March,
pushing it from a three-year long record low of 2.5 percent to 2.75
March, the central bank forecast a benchmark interest rate of 3.75
percent by the end of this year and 4.75 percent by 2015.
NZ Capital economist Chris Green told Radio New Zealand's Nine
to Noon programme the market is expecting the next rise in