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Rapid decreases in interest rates would likely result in an unsustainable surge in growth, capacity bottlenecks and further inflame an already seriously overheating property market, Reserve Bank of New Zealand Governor Graeme Wheeler said Tuesday.
"We do not believe that the outlook and balance of risks warrants a position of no policy change, nor a position of rapid easings," Wheeler said.
The bank encountered a view that it should not lower interest rates, because current robust economic growth makes interest rate cuts unwarranted and undesirable.
"An aggressive monetary policy that is seen as exacerbating imbalances in the economy would not be regarded as sustainable, and would not deliver the exchange rate relief being sought," said Wheeler.
He said the bank remains committed to the inflation goals. A flexible inflation targeting remains the most appropriate framework for conducting monetary policy in New Zealand.
The rationale for the rate cut in August was to lower the risk of a further fall in short-term inflation expectations - RTT news.
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