Strong economy boosted by confidence

Last updated 05:00 01/02/2014

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Economic growth and inflation have been stronger than the Reserve Bank expected just six weeks ago, Reserve Bank Governor Graeme Wheeler says.

But the New Zealand dollar has also been higher and there are signs the housing market is cooling, he said in a speech to the Canterbury Employers Chamber of Commerce in Christchurch.

Wheeler painted a picture of a strong economy, boosted by the Canterbury rebuild, high commodity prices and strong consumer and business confidence.

While there were "initial indications" that house price rises had started to moderate since the introduction of restrictions on low-deposit home loans late last year, it was too soon to draw "firm conclusions".

Wheeler repeated that New Zealand house prices were overvalued, with a recent OECD report suggesting they were 25 per cent above long-term averages.

He also had another crack at the high dollar.

"The exchange rate remains a considerable headwind for the economy and the bank does not think its current level is sustainable in the long run," he said.

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