New Zealand central bank maintains interest rate at 1.75 pct

Graeme Wheeler governor of the Reserve Bank of New Zealand

Two people walk towards the entrance of the Reserve Bank of New Zealand located in the New Zealand capital city of Wellington, March 22, 2016.

The Reserve Bank has held its cash rate steady at a record low 1.75 percent, and pointed to only a gradual rise in interest rates.

Wheeler is wary of stoking expectations of a rate increase for fear of boosting the kiwi dollar and curbing inflation, which returned to the midpoint of the RBNZ's 1-3 percent target band in the first quarter for the first time in more than five years.

"There is a lot of noise and some people are misunderstanding what they are seeing", McDermott said.

Investors got ahead of themselves by pricing in NZ rate hikes early next year, said Capital Economics's Paul Dales.

"In New Zealand, the RBNZ struck a surprisingly dovish chord in its latest policy decision, while in Canada, Moody's has come out with a downgrade of Canada's big six".

While Westpac is broadly in agreement with the Reserve Bank that domestic inflation pressures are still subdued, there are still some aspects of their forecasts that concern them, Gordon said.

"Developments since the February Monetary Policy Statement on balance are considered to be neutral for the stance of monetary policy", Governor Graeme Wheeler said in a statement.

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But Mr Wheeler said there were still uncertainties about the housing market and the worldwide economy, which justified keeping interest rates on hold until 2019.

The central bank attributed recent inflation gains to rises in fuel and food prices which it deemed to be temporary.

The New Zealand dollar sank to an nearly one-year low and its Canadian counterpart by roughly half a percent on Thursday as domestic concerns outweighed a bounce in oil prices for the commodity-focused currencies.

He dropped the phrase "further depreciation is needed to achieve more balanced growth" that had featured in statements published earlier this year.

The kiwi is down by 0.7% at 0.6845 dollar as of 8:10 a.m. ET after falling by as much as 1.3%. "Numerous uncertainties remain and policy may need to adjust accordingly".

"The risk of the extreme outcomes from those three things seems to be less than they were a few months ago", he said, while still advising caution.

"The growth outlook remains positive, supported by on-going accommodative monetary policy, strong population growth and high levels of household spending and construction activity", Wheeler said.

Nick Tuffley, chief economist at ASB Bank in Auckland, queried whether the RBNZ's rate outlook was too serene.

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