Interest rates rise in New Zealand and Britain

The central banks of both New Zealand and Britain raised interest rates today.

In New Zealand, the Reserve Bank raised the Official Cash Rate (OCR) to 5.75 per cent from 5.5 per cent.

"Moving interest rates higher is ... appropriate to ensure that medium-term inflation remains within the target range," Reserve Bank governor Alan Bollard said.

"At this stage, further increases in interest rates look likely to be needed over the year ahead, but to a modest degree by historical standards."

New Zealand already has the highest interest rates in the developed world.

The Bank of England raised the repo rate by a quarter-point to 4.5 per cent.

"Household spending, public consumption and investment have all grown strongly and the housing market remains buoyant. The labour market has tightened further," the Monetary Policy Committee (MPC) said in a statement explaining its decision.

"As indicated in the May inflation report, a small and diminishing margin of spare capacity means that inflationary pressures are likely to continue building," the MPC said.

"Against that background, the committee judged that a further increase of 0.25 percentage points in the repo rate to 4.5 per cent was necessary to keep CPI inflation on track to meet the target in the medium term."

The stage is now set for the Federal Reserve to raise interest rates as well on 30 June.