24 Apr 2014

Kiwi lifts against US dollar

7:00 pm on 24 April 2014

The New Zealand dollar strengthened against the greenback on Thursday, despite Reserve Bank Governor Graeme Wheeler's attempt to talk it down after raising the Official Cash Rate again.

As widely expected, the central bank lifted the benchmark interest rate for the second time in as many months by 25 basis points to 3 percent.

In response, the New Zealand dollar rose a third of a US cent to 86.25 US cents and remained at that rate on Thursday evening.

In a statement accompanying the increase, Graeme Wheeler said the Kiwi remained overvalued and the current exchange rate was not sustainable.

The Reserve Bank said rate increases are needed to keep inflation at around the 2 percent mark, as prices were likely to continue rising for the next two years.

ASB Bank economist Chris Tennant-Brown says market reaction was muted because the increase was expected. He believes the dollar is likely to go higher next week when the US Federal Reserve meets on 1 May.

Most economists expect the Reserve Bank to raise rates again in June, but are less sure if it will do so again in July. The strong New Zealand dollar is helping to keep inflation in check, which some economists say could affect when, and by how much, rates rise.

Meanwhile, the country's biggest lender, ANZ, was the first to raise its mortgage and savings rates by 25 basis points on Thursday

At 5.20pm on Thursday, the New Zealand dollar was buying 86.25 US cents, 92.75 Australian cents, 51.38 British pence, point-6239 euro, 88.24 yen and 5.38 renminbi.