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New Zealand Reserve Bank keeps interest rates on hold

New Zealand Reserve Bank keeps interest rates on hold

New Zealand's Reserve Bank on Thursday kept the Official Cash Rate on hold in its latest review.

The benchmark interest rate has been held at a record low 2.5 percent since March 2011.

Reserve Bank Governor Graeme Wheeler on Thursday gave a list of factors that would boost the economy in 2013, such as improving business confidence, construction activity and trading prospects.

However he flagged as risks the weak job market and the " overvalued New Zealand dollar".

Overall, though, the bank expected economic growth to strengthen over the coming year and "on balance, it remains appropriate for the OCR to be held at 2.5 percent", Wheeler said in a statement.

He said global growth was set to recover in 2013 with economic indicators improving in many of New Zealand's trading partners.

Global financial market sentiment was positive, contributing to lower bank funding costs and some reduction in interest rates faced by households and firms.

"Domestically, recent data on business confidence and construction activity suggest GDP growth is recovering from the softness seen through the middle of last year.

The Canterbury rebuild is gathering momentum and its impact will be felt more broadly in incomes and domestic demand," he said.

"House price inflation has increased and we are watching this and household credit growth closely. The Bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply," he added.

Inflation remains subdued and is currently just below the bottom of the Reserve Bank's inflation target range. This mainly reflects the impact of the overvalued New Zealand dollar.

"The high currency is directly suppressing inflation on traded goods, and is undermining profitability in export and import competing industries. At the same time, the labour market remains weak and fiscal consolidation is dampening growth," he added.

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