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Home owners steamrolled by New Zealand's growing economy
Last Updated: 2014-04-24 09:37 | Xinhua
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New Zealand's economy might well be growing at a rate well beyond that of other developed nations, but home owners learned Thursday that they are carrying the can for the resulting inflationary pressure after the central bank announced a second interest rate rise in six weeks and analysts warned of more to come.

Opposition parties said middle class home owners would be particularly hard hit after the Reserve Bank of New Zealand raised the official cash rate (OCR) by 25 basis points last month and the same again Thursday to bring it to 3 percent.

The rises came after three years of Reserve Bank holding the OCR at the historic low of 2.5 percent.

"New Zealand interest rates are among the highest in the world, putting more and more pressure on our exchange rate to the detriment of exports," finance spokesperson for the main opposition Labor Party, David Parker, said in a statement.

"With the Reserve Bank tipping interest rates to go to 8 percent this is going to cause real pain for home owners and will make the dream of home ownership unattainable for many more Kiwis. "

Labor housing spokesperson Phil Twyford said in the statement that the OCR hike followed "five years of out-of-control house price increases" in the biggest city of Auckland, while the government refused to tax speculators or build a greater number of new homes.

Council of Trade Unions economist Bill Rosenberg said the focus should be on making housing more affordable and raising wages, which were up just 0.6 percent in real terms between 2009 and 2013 while labor productivity rose 10.1 percent.

"Rising interest rates will keep the value of the dollar up, threatening jobs in exporters and firms competing with imports, and add to housing costs," Rosenberg said in a statement.

The HSBC Bank said Thursday it expected the OCR to hit 3.5 percent by yearend although the market was expected rises totaling another 60 basis points.

"Overall, with demand continuing to rise strongly, we expect the central bank to hike rates further in 2014, with a 25 basis point increase at the June meeting likely. However, a strengthening exchange rate may mean slightly fewer hikes than the market is currently pricing," said a statement from HSBC.

Announcing Thursday's OCR hike, Reserve Bank governor Graeme Wheeler said New Zealand's economic growth had a considerable momentum, with GDP estimated to have grown by 3.5 percent in the year to March.

"Headline inflation is moderate, but inflationary pressures are increasing and are expected to continue doing so over the next two years," said Wheeler, adding the hike was aimed at keeping future average inflation near the 2 percent mid-point of the 1-percent to 3-percent target range to ensure that the economic expansion could be sustained.

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