RBNZ raises rates citing 'impressive' growth

"It is now prudent to begin returning interest rates to levels that will have less stimulatory effects on demand. By historical standards we do not expect a large adjustment in interest rates will be necessary," Governor Alan Bollard said.

"Data since December have pointed to stronger activity than we then thought in areas such as household spending, construction and the housing market, further fuelling inflation. Further inflation pressure is likely in the next few months from areas such as construction costs and energy. Interest rates have been stimulating demand as shown in further solid growth in household credit.

"On balance, these developments strengthen our view, foreshadowed in our December Monetary Policy Statement (MPS), that it is now prudent to begin returning interest rates to levels that will have less stimulatory effects on demand. By historical standards we do not expect that a large adjustment in interest rates will be necessary.

"By raising interest rates now, we hope to avoid having to increase interest rates more aggressively later on.