The Reserve Bank has raised its headline interest rate to 7.75 percent.
Despite the fact that inflation is falling and, at 2.5 percent, is within the Bank’s target range of 1 to 3 percent, the Reserve Bank felt that inflationary risks in the economy are high enough to justify further pain for home buyers.
Immigration Partly To Blame
The Bank said domestic demand and inflation were being driven by:
- A buoyant housing market
- Increases in government expenditure
- Rising terms of trade
- Ongoing net immigration
- A robust labour market
Shortages of Workers Increasing
Firms are reporting that they are finding increasing difficulty in hiring both skilled and unskilled staff.
Exchange Rate
The New Zealand Dollar has been extremely strong against most other currencies of late. The exchange rate is now at levels that are exceptional by historical standards, and – in the Bank’s opinion - unjustified on the basis of medium-term economics.
The Economy
As a result of the high NZ Dollar, much of New Zealand’s export sector continues to face an uphill struggle. The recent sharp rise in world dairy prices, however, should provide a boost to New Zealand’s all-important dairy sector and tourist arrivals are continuing to grow.
New Zealand’s CPI Inflation Rate in Recent Times
Mar. 2005: 2.8%
June 2005: 2.8%
Sept. 2005: 3.4%
Dec. 2005: 3.2%
March 2006: 3.3%
June 2006: 4.0%
Sept. 2006: 3.5%
Dec. 2006: 2.6%
Mar. 2007: 2.5%