Investing.com - The Reserve Bank of New Zeland left the cash rate at a record low of 2.5% on Thursday, saying the country''s "economic expansion has considerable momentum" and adding that a return of interest rates to more normal levels can be expected "soon."
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"While headline inflation has been moderate, inflationary pressures are expected to increase over the next two years. In this environment, there is a
need to return interest rates to more-normal levels," The RBNZ said in a statement.
"The Bank expects to start this adjustment soon. The Bank remains committed to increasing the OCR, official cash rate, as needed to keep future average inflation near the 2 percent target mid-point. The scale and speed of the rise in the OCR will depend on future economic indicators."
The RBNZ said that with annual inflation at 1.6% in 2013 and many firms looking to raise prices, there are increased inflation risks. However, the RBNZ said that a flow through of a higher exchange rate is not sustainable.
"The high exchange rate continues to dampen inflation in the traded goods sector, but the Bank does not believe the current level of the exchange rate is sustainable in the long run."