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TheStreet Open House

New Zealand poised to raise rates as economy booms

By NICK PERRY

WELLINGTON, New Zealand (AP) a¿¿ Five years after the global financial crisis, New Zealand is poised to become one of the first developed nations to raise interest rates in response to a thriving economy.

The South Pacific nation of 4.5 million is benefiting from huge demand in China for its milk products and from the gathering pace of reconstruction in Christchurch, where a 2011 earthquake destroyed much of the southern city's downtown.

The improving economy also seems to be slowing the exodus of residents to Australia, which boasts higher living standards than New Zealand and weathered the financial crisis better than almost every other nation thanks to a mineral boom. But Australia's economy has begun slowing, just as New Zealand's takes off.

Economic growth has reached a healthy annual clip of 3.5 percent, better than most developed nations, and the trend is expected to continue. In its 2014 outlook, the OECD predicted New Zealand's GDP will expand by 3.3 percent, more than the 2.9 percent in the U.S., 2.6 percent in neighboring Australia, and 1 percent in the euro area.

Reserve Bank of New Zealand Governor Graeme Wheeler said Thursday that New Zealand's growth has "considerable momentum" and the bank expects to begin raising its benchmark interest rates "soon" from a record low of 2.5 percent. Most economists predict rate hikes will begin in March and continue throughout the year.

Some emerging economies including Turkey and South Africa recently raised rates, but in those cases it was an attempt to shore up their currencies rather than preventing a boom from overheating. The U.S. central bank, meanwhile, is reducing the level of extraordinary stimulus it has been giving the economy through bond purchases. Even after that stimulus is phased out, the Federal Reserve is expected to keep interest rates at record lows.

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