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RBNZ Ready to Pull Trigger in 2014

New Zealand’s central bank said it expects to raise interest rates next year as the economy strengthens and inflation picks up. The currency rose.

“With the inflation pressures that have the potential to build up, given the capacity constraints in the economy, we will need to raise interest rates,” Reserve Bank of New Zealand Governor Graeme Wheeler said in Wellington today after leaving the official cash rate at 2.5 percent, a record low. “Exactly when that will start to trigger will be determined by many factors. At this point we don’t expect that to start this year.”

New Zealand may become one of the first developed nations to begin raising borrowing costs as an overheated housing market and accelerating economic growth start to stoke price pressures. Until then, Wheeler is betting new limits on riskier mortgages will curb demand for property and give him scope to leave rates unchanged for as long as possible to avoid fueling demand for the New Zealand dollar.

Bloomberg [1]

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