By Lucy Craymer
WELLINGTON, New Zealand--New Zealand on Thursday raised interest
rates for the fourth time this year but signaled it wouldn't
introduce further increases until the impact of the latest hike has
been assessed.
The economy appears to be adjusting to the monetary policy
tightening and "it is prudent that there now be a period of
assessment before rates adjust further towards a more-neutral
level," Reserve Bank governor Graeme Wheeler said in a statement
after lifting the cash rate 0.25 percentage point to 3.5%. Rates
have been lifted 1 percentage point this year.
The South Pacific nation, with a population of 4.5 million, has
been outperforming most major economies thanks to booming demand in
Asia, not only for dairy but also for meat exports; a construction
boom after a series of devastating earthquakes; and an influx of
immigrants. The economy has outpaced the U.K. and U.S. in recent
years, expanding 3.3% in the year through March.
The country's central bank this year became so convinced of the
economy's health that it began to raise interest rates, something
few other developed economies have dared do since the global
financial crisis. It stands in contrast to moves by the European
Central Bank, which adopted a negative interest rate on bank
deposits--a first for such a large central bank.
However, recent data hasn't been as rosy in recent weeks and
inflation remains at the lower end of the central bank's annual
inflation target of between 1% and 3%.
Mr. Wheeler said headline inflation remains moderate but strong
growth was absorbing spare capacity and this was expected to add to
non-tradables inflation. "Today's move will help keep future
inflation near the 2% target midpoint and ensure that the economic
expansion can be sustained," he said.
New Zealand's economy continues to expand, with annual growth of
3.7% expected over the 2014 calendar year as global financial
conditions remain accommodative, Mr. Wheeler said. However, he
added, economic growth among the country's trading partners has
eased slightly in the first half of 2014, seemingly because of
temporary factors.
While commodity prices--dairy and timber in particular--have
dipped, the New Zealand dollar has remained strong. "The level of
the New Zealand dollar is unjustified and unsustainable and there
is potential for a significant fall," Mr. Wheeler said.
He noted in June that construction in Canterbury was growing
strongly and net immigration was adding to housing and household
demand, although house price inflation has moderated further since
then.
Write to Lucy Craymer at Lucy.Craymer@wsj.com