MIDDAY UPDATE: Wheeler keeps OCR on hold, glowers at housing

By Paul McBeth

Jan. 31 (BusinessDesk) - Reserve Bank governor Graeme Wheeler has kept the official cash rate 2.5 percent as expected, though stepped up his rhetoric on a ballooning property market.

The bank is keeping close tabs on house price inflation and credit growth, which will likely get a fillip from the Canterbury rebuild, and the last thing Wheeler wants is "financial stability or inflation risks accentuated by housing demand getting too far ahead of supply,” he said.

Wheeler is facing increasing pressure to use macro-prudential tools, such as limiting loan-to-value ratios or increasing banks’ capital requirements, to deliver looser monetary conditions and take some pressure off the strong New Zealand dollar.

The governor has been reluctant to accept this lobbying, saying the tools, which are still under construction, are to protect the country’s financial stability, not influence monetary policy.

Wheeler kept the cash rate on hold, saying the strong kiwi dollar was keeping a lid on inflation, which is below the bank's target 1 percent to 3 percent band.

RBNZ puts cash on the table in talking down dollar

The Reserve Bank has taken a small bet on its jawboning of the kiwi dollar, with bank figures showing it sold a net $199 million of New Zealand dollars last month.

The move added to $64 million of net sales in November in the biggest monthly sale since mid-2008 when the kiwi dollar plunged going into the global financial crisis.

Mike Jones, currency strategist at Bank of New Zealand in Wellington, said the central bank is backing up its heightened rhetoric with some action, and is signalling a TWI at 75 is too high.

"The bank is walking the talk by selling the kiwi dollar a little more aggressively," Jones said.

The central bank last intervened in currency markets in 2007 when it sold more than $2 billion to ease the last peak in the kiwi dollar.

Since taking the Reserve Bank reins in September last year, Wheeler has criticised the strength of the kiwi dollar, calling it overvalued and saying it's holding back the economic recovery. He has previously ruled out intervening in currency markets, which he says wouldn't have a sustainable influence on the kiwi.

Xero builds up cash-pile after December placement

Accounting software firm Xero has built up $85 million in cash by the end of last year after a $60 million injection from US investors.

The Wellington-based company's first quarterly cashflow report, which is required by the ASX, shows net operating and investing cash outflows for the quarter of $6 million. Xero spent $6.48 million on staff costs in the quarter and $1.05 million on advertising and marketing.

Its receipts from customers were $10.12 million in the quarter and $25.96 million in the nine months to Dec. 31.

The bulk of the firm's cash came from December investments by Peter Thiel-backed Valar Ventures of San Francisco, which stumped up $24 million, and Massachusetts-based Matrix Capital Management which invested $58 million. They also purchased collectively $22 million of existing shares from Xero’s three largest shareholders.

The company's shares fell 0.7 percent to $7.25 in trading today.



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