New Zealand’s central bank said continued gains by the nation’s currency may give it scope to delay interest-rate increases that will likely be needed next year to combat faster inflation.
“Sustained strength in the exchange rate that leads to lower inflationary pressure would provide the bank with greater flexibility as to the timing and magnitude of future increases in the OCR,” Governor Graeme Wheeler said in a statement released in Wellington today after leaving the official cash rate at 2.5 percent, a record low.
New Zealand may become one of the first developed nations to begin raising borrowing costs amid expectations inflation will accelerate toward the middle of the 1 percent to 3 percent range the RBNZ targets. While the kiwi dollar’s gains make imports cheaper, rising domestic demand fanned by a housing boom adds to signs a rate rise may come as early as March.
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