OCR up, floating rates to follow
Reserve Bank Governor Alan Bollard said: "The economy has entered its second year of recovery with growth becoming more broad-based.
"The recovery in trading partner activity is continuing, with growth in Asia particularly strong. Along with ongoing growth in Australia and recovery in the United States, this has so far offset weak growth in some other export markets. Against this backdrop, New Zealand's export commodity prices have increased sharply over the past few months, boosting export incomes.
"In contrast to signs of global economic recovery there has been renewed turmoil in financial markets. Currently, we expect the main impact on New Zealand to come through continuing upward pressure on the cost of funds to the banking system.
"In New Zealand, growth of around 3½ percent is expected this year and next. The main drivers of this outlook are higher export prices and volume growth, an improving labour market and a pick-up in residential and business investment. However, we expect households to remain relatively cautious, with the housing market and credit growth staying subdued. This moderate household spending contributes to some rebalancing in the economy.
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