OCR held at 2.5 percent
Thu, 31 Jan 2013 9:37a.m.
The New Zealand dollar rose after the Reserve Bank of New Zealand held the official cash rate at 2.5 percent even though the central bank said the currency is overvalued.
The kiwi rose 83.40 US cents from 83.11 cents just before Thursday's review and 83.71 cents at 5pm on Wednesday.
It had fallen overnight to 82.99 cents when global sentiment took a hit from news the US economy contracted in the fourth quarter for the first time since 2009, and the S&P 500 slipped from a five-year high.
In leaving the official cash rate unchanged at 2.5 percent bank governor Graeme Wheeler said global growth will recover in 2013 as will the local economy.
He said subdued inflation mainly reflected the impact of the overvalued New Zealand dollar.
"The high currency is directly suppressing inflation on traded goods, and is undermining profitability in export and import competing industries.
"At the same time, the labour market remains weak and fiscal consolidation is dampening growth," he said.
US gross domestic product fell at a 0.1 percent annual rate after expanding at a 3.1 per cent clip in the third quarter. No economists polled by Reuters had predicted a contraction.
The US Federal Open Market Committee, as expected, left in place its bond-buying stimulus plan, and kept interest rates low, in a statement released just ahead of the RBNZ rate review.
The Australian fourth-quarter terms of trade report on Thursday will also be closely watched.
The kiwi was at 80.13 Australian cents after 9am from 79.74 cents at 8am and 79.94 cents at 5pm on Wednesday.
It was at 75.70 yen at 8am from 76.04 yen at 5pm on Wednesday, at 61.29 euro cents from 62.05 cents and was at 52.63 British pence from 53.13.
The trade-weighted index was at 74.85 from 75.29.
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31/01/2013 1:29:15 p.m.
There is no inflation and will be none for the foreseeable future, the RBNZ interest rate policy is creating the housing bubble. The Risk On Interest Rate Arbitrage brigade are the fuel that is increasing house prices. Reduce interest rates and you effectively increase the Feds fund rate thereby appreciating the $US and depreciating the $AU and the $NZ. Currently the RBNZ is outside it's gazetted terms of reference.
The NZRB, if they are working for their respective economies must cut rates if real growth is to happen that improves life for the masses. However that would effectively increases the US Fed's funding rate due to the loss of arbitrage between the risk currencies and to me it seems that the Central Banks that are friendly with the US are working with them rather than for their sovereign states in order to maintain the low US Dollar - In terms of the global economy things have got that bad I suppose.
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