New Zealand raises interest rate to 2.75 percent

WELLINGTON - New Zealand’s central bank Thursday raised the benchmark interest rate by 25 basis points to 2.75 per cent, the first hike in over a year.

Reserve Bank governor Alan Bollard had kept the official cash rate (OCR) at a record-low 2.5 percent since April 2009.

In his ninth scheduled review of monetary policy since then, he said: “The economy has entered its second year of recovery with growth becoming more broad-based”.

Bollard rejected calls to keep the interest rate down, as labour unions, manufacturers and farmers argued that the recovery was still too fragile.

“The recovery in trading partner activity is continuing, with growth in Asia particularly strong,” he said.

“Along with ongoing growth in Australia and recovery in the United States, this has so far offset weak growth in some other export markets. Against this backdrop, New Zealand’s export commodity prices have increased sharply over the past few months, boosting export incomes.”

Bollard said the economy was expected to grow by around 3.5 percent this year and next, driven by higher export prices and volumes, an improving labour market and a pick-up in residential and business investment.