NZ Dollar Remains Strong After RBNZ Holds Interest Rate

The New Zealand dollar jumped today and remained strong after the nation’s central bank announced that the main interest rate remains unchanged. The decision was expected, but it was positive for the currency nevertheless as the current economic conditions often force central banks to ease their monetary policies. The absence of an interest rate cut was viewed as a sign of robust economic growth.

The Reserve Bank of New Zealand kept its benchmark interest rate at 2.5 percent. The rate was unchanged since March 2011.

Reserve Bank Governor Alan Bollard said in the statement that the central bank expects “economic activity to grow modestly over the next few years”. He mentioned the exchange rate among negative factors for economic growth, but, perhaps, even more important was the situation in Europe:

New Zealand’s trading partner outlook remains poor, with several euro-area economies in recession. There remains a limited risk that conditions in the euro area deteriorate very significantly.

Some economists predict an interest rate hike in the first half of 2013, while others say that the RBNZ would keep rates stable till 2014.

NZD/USD rose from 0.7844 to 0.7998 and NZD/JPY climbed from 61.28 to 61.65 as of 23:45 GMT today. EUR/NZD was flat at 1.5354.

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