The New Zealand dollar was fairly nonplussed by the Reserve Bank's decision to hike interest rates today.
In a widely anticipated move, Reserve Bank Governor Alan Bollard hiked the official cash rate (OCR) to 7 per cent from 6.75 per cent to try and quell annual inflation, which is running at 3.4 per cent.
In a toughly worded statement, Dr Bollard said he could not rule out further rate rises.
"Borrowers and lenders alike need to recognise that the current rate of debt accumulation is unsustainable," Dr Bollard said.
"Today's increase in the OCR, combined with higher world interest rates and pipeline effects from the repricing of fixed rate mortgages, are expected to slow the housing market and household spending over the coming months."
The market had already priced in at least a 25 basis point rate hike, with some hawks hoping for a 50 point hike. Shortly after the RB's announcement the kiwi dipped to US70.10c , from its US70.28c opening and US70.64c close yesterday.
But the kiwi gained ground throughout the day as the market debated how soon further rate hikes would be implemented. The BNZ is forecasting another 25 bp rise in December, but a Reuters poll tipped the RB to hold steady a 7 per cent until March next year.
- NZPA
<EM>Currency:</EM> Kiwi's reaction to rate rise muted
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