Thursday, September 13, 2007

New Zealand Central Bank Holds Rates Amid Global Market Turmoil

Source : Channel NewsAsia, 13 September 2007

Picture : Victoria Street in central Auckland

WELLINGTON: New Zealand's central bank kept interest rates on hold Thursday following four successive rises, citing the recent turmoil in global financial markets.

Reserve Bank of New Zealand Governor Alan Bollard said the official cash rate would remain at 8.25 per cent, one of the highest rates in the developed world.

"Credit concerns and heightened risk aversion have led to significant turbulence in global financial markets," Bollard said.

"This development increases the likelihood of a weaker economic outlook for the United States and New Zealand’s other key trading partners than in recent forecasts."

Nevertheless, inflation pressures remain and Bollard gave no indication that interest rates would fall anytime soon.

The central bank raised its inflation forecast for the current year to March to 2.8 per cent from 2.2 per cent in its June forecast.

In the following year, inflation is expected to rise to the top of the bank's one to three per cent mandated target range.

The economy is expected to be boosted over the next two years by sharp rises in world prices for dairy products and some other commodities and this could be reinforced if recent falls in the local currency continue.

On the other hand, previous interest rate increases were starting to dampen domestic spending, which will help to reduce inflationary pressures.

"In particular, household borrowing growth is beginning to slow and turnover in the housing market continues to fall," Bollard said.

The central bank expects economic growth of 2.9 per cent in the current year to March and for the following year. - AFP/ac

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