The New Zealand dollar rose after Reserve Bank governor Graeme Wheeler kept his forecast track for interest rates almost unchanged and gave no signal there is room for the official cash rate to be cut.
The kiwi rose to 82.81 US cents from 82.49 cents immediately before the monetary policy statement was released. The trade-weighted index rose to 73.84 from 73.68.
Mr Wheeler kept the official cash rate unchanged at 2.5%, as expected. He called the strong kiwi dollar a "significant headwind" for the economy, saying he would like to see it lower "if we could achieve it without threatening the inflation outlook and financial stability".
While intervention was an options "we have yet to find a situation that meets all of our traffic lights". He trimmed his forecast for 90-day bank bills to 2.7% in the fourth quarter of 2013 from the 2.8% rate in the September MPS.
"The market was looking for something more dovish and maybe a greater opening for a rate cut," says Robin Clements, senior economist at UBS New Zealand. "They've now concluded that's not the case," he said, adding that on first impression the MPS was "reasonably balanced."
Still, Mr Wheeler will not rush to raise the OCR, forecasting a gradual rise in inflation to 2%, the mid-point of his target range.
"The outlook we have is for the OCR to remain stable for quite some period. Our projections don't show an increase until next year, being 2014," he told a briefing after the MPS was released.
The kiwi rose to 79.14 Australian cents from 78.86 cents before the report was released.
Mr Wheeler's statement highlights the contrast with Australia, where the central bank cut its cash rate to 3% this week, citing a weak labour market.
This article is tagged with the following keywords. Find out more about MyNBR Tags
Most listened to
- Tourism Association head Chris Roberts explains why the accommodation industry will fight 150% council rates rises
- Competition lawyer Andy Matthews' rates Spark's chance of success with its Skyfone legal challenge
- Kiwibank CEO Paul Brock on rising mortgage book, falling profit
- Thincats’ Sunil Aranha on how Harmoney could cope in the competitive Australian market
- Nevil Gibson says Fitch Ratings has moved its main risk to the economy from dairy returns to house prices