New Zealand Reserve Bank to keep interest rates unchanged

New Zealand Reserve Bank Governor Alan Bollard on Thursday held the Official Cash Rate (OCR) unchanged at 2.5 percent, as expected.

Announcing the Reserve Bank's latest interest rate decision, the central bank governor said the economy had improved over the last three months, boosted by continuing high export prices, and that firms were feeling more confident about hiring and investment.

Despite this, he said, household spending was expected to remain weak for some time, weighed down by high levels of debt.

As a result, pressures on underlying inflation remain constrained and only gradual rises were to be expected in the OCR over the coming two years.

Bollard said economic activity has been significantly disrupted by the Feb. 22 6.3-magnitude Christchurch earthquake.

"However, while many firms and households - particularly within Canterbury - continue to be adversely affected, it appears the negative confidence effect of the earthquake on economic activity throughout the rest of the country has been limited," his statement said.

The statement went on to say that reconstruction in Canterbury is projected to add about 2 percentage points to GDP growth over 2012, and boost the level of activity for several years after that.

The central bank's last move on the benchmark interest rate was on March 10 when it reduced the OCR from 3 percent to 2.5 percent.

Bollard said the New Zealand dollar had risen substantially over the past two months.

"This appreciation, supported by high export prices for primary producers, is negatively affecting other parts of the tradable sector, constraining rebalancing of the New Zealand economy," he said in the statement.

The New Zealand dollar has risen sharply following the Reserve Bank's decision to leave the official cash rate unchanged at a record low of 2.5 percent.

The currency rose immediately after the announcement and by midday was buying 82.3 U.S. cents - close to last week's post- float high of 82.6 U.S. cents.

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