The world outlook remains uncertain but its prospects remain sufficiently strong to add support to a New Zealand expansion which is both broadening and gaining in momentum. The Reserve Bank’s attempts to contain excessive house price appreciation appear to be working but this will not seriously impact GDP growth. Consequently, reducing spare capacity, coupled with an eventual weakening in the NZD, will require a significantly higher cash rate than the 2.5% currently in place. It may yet be a while before the RBNZ springs into action but, when it does, the response will be far from subtle.
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