“We expect the New Zealand dollar to remain elevated for some time,” Shamubeel Eaqub, principal economist at the Wellington-based nonprofit research group said in an e-mailed statement. “A high dollar is helping to keep a lid on inflation for now.”
The currency surged to a record yesterday and has advanced 11 percent since early March on speculation interest rates may need to rise after a report showed business confidence this month at a 12-month high. Improving prospects may embolden companies to raise prices just as rebuilding from the nation’s deadliest earthquake in 80 years starts to fan inflation next year, Eaqub said.
“Despite a gradual recovery, medium-term inflation pressures are building,” he said. “The Reserve Bank will need to raise rates next year toward 4 percent to offset these inflationary pressures.”
The official cash rate is at a record-low 2.5 percent. There is an 86 percent chance that central bank Governor Alan Bollard will raise the cash rate by a quarter point by December, according to swaps prices late in Wellington yesterday.
The institute forecasts economic growth will recover to 3.7 percent in 2012 from 0.3 percent this year as reconstruction gets under way in the southern city of Christchurch, where a magnitude 6.3 earthquake on Feb. 22 killed more than 180 people and shut the central business district.
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