RBNZ Signals About Possible Interest Rates Hike, NZD Higher

The New Zealand dollar gained today, extending its rally for the second day, after the Reserve Bank of New Zealand key its target interest rate unchanged, but suggested that an increase is possible in the future.
The RBNZ left its key Official Cash Rate (OCR) unchanged at 2.5 percent. Reserve Bank Governor Alan Bollard explained the factors that currently prevent the central bank from tightening the monetary policy:

Domestic activity has continued to expand at only a modest pace despite relatively strong commodity prices. More recently, domestic business confidence has fallen back somewhat. Further ahead, earthquake repairs and reconstruction in Canterbury are still expected to provide significant impetus for demand.

Bollard mentioned the negative impact of the European crisis on the economy of New Zealand. The Governor also said the inflation remains above the Bank’s 1 to 3 percent target range, but it’s likely soon to settle near 2 percent. Still, the relatively high inflation leave a place for an interest rates increase and, indeed, Bollard hinted at such possibility:

If global developments have only a mild impact on the New Zealand economy, it is likely that gradually increasing pressure on domestic resources will require future OCR increases.

For now, the fragile state of the global economy has its negative impact on the economy of New Zealand as was demonstrated by the increasing trade balance deficit. The trade deficit increased to NZ$751 million in September from NZ$697 million in August, while forecasts promised a decrease to NZ$421 million.
NZD/USD advanced from 0.8009 to 0.8040 today as of 3:37 GMT, following the initial drop to 0.7984. NZD/JPY rose from 60.96 to 61.12.

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