2014.04.2319:30:00UTC+00RBNZ Raises OCR To 3.00 Percent

The Reserve Bank of New Zealand on Thursday raised its Official Cash Rate by 25 basis points, to 3.00 percent from 2.75 percent.

The decision was in line with expectations, and it marks the second straight month with a rate hike following 24 straight meetings in which the rate was not changed.

"New Zealand's economic expansion has considerable momentum, with GDP estimated to have grown by 3.5 percent in the year to March. Growth is gradually increasing in New Zealand's trading partners, but inflation in those economies remains low. Global financial conditions continue to be very accommodating," Reserve Bank Governor Graeme Wheeler said in a statement that accompanied the decision.

The OCR had been unchanged for more than three years; the RBNZ pared the rate from 3.00 percent on January 27, 2011 in an attempt to spur the economy.

But the central bank had plainly said it would begin raising the rate in early 2014, since it was pleased with the rate of recovery.

"Prices for New Zealand's export commodities remain very high, though auction prices for dairy products have fallen by 20 percent in recent months. Domestically, the extended period of low interest rates and strong growth in construction sector activity are supporting the recovery. Net immigration continues to increase, boosting housing and consumer demand," Wheeler said.

The bank also wishes to keep overall inflation close to its target of 2.0 percent; in 2013, CPI was up 1.6 percent and trending to the upside.

"Spare capacity is being absorbed, and inflationary pressures are becoming apparent, especially in construction and other non-tradable sectors. The high exchange rate remains a headwind to the tradables sector, and along with low import price inflation has been holding down tradables inflation. The Bank does not believe the current level of the exchange rate is sustainable," Wheeler said.

The RBNZ governor also hinted that the bank is not finished with rate hikes - although the pace of the increase will be determined by the trend of economic data.

"The 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. By increasing the OCR as needed to keep future average inflation near the 2 percent target mid-point, the Bank is seeking to ensure that the economic expansion can be sustained," Wheeler said.