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New Zealand hikes interest rates for third time to 3.25 per cent as economy picks up steam

WELLINGTON, New Zealand - New Zealand on Thursday raised its benchmark interest rate for the third time this year to 3.25 per cent.

The country's Reserve Bank said the economy has "considerable momentum" and is growing at about a 4 per cent annual clip.

New Zealand is among the first industrialized nations to begin raising rates since the 2008 global financial crisis. Its economy has benefited from strong demand in China for its milk exports and rebuilding efforts in the city of Christchurch following a 2011 earthquake.

However, the rate hikes have put upward pressure on the New Zealand dollar with global investors attracted to rising returns on New Zealand financial assets. That, in turn, has hurt exporters.

After Thursday's rate hike, the New Zealand dollar jumped to $0.8653 from $0.8612 late Wednesday.

The Reserve Bank forecasts the economy's growth rate will ease over the coming year.

Reserve Bank Governor Graeme Wheeler said dairy prices have fallen by 26 per cent since February from historic highs, meaning lower incomes for farmers.

Wheeler said house price inflation, which has been a big concern of the bank, has moderated in recent weeks.

Overall inflation is running at about 1.7 per cent, with the Reserve Bank predicting it will rise to about 2 per cent next year.

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