New Zealand hints at rate rise

By CNN's Alex Frew McMillan in Hong Kong

WELLINGTON, New Zealand (CNN) -- New Zealand's central bank left interest rates alone Wednesday, saying it still saw excess in the economy.

The decision from the Reserve Bank of New Zealand (RBNZ) matched the move by Australia's central bank on Monday.

It was also expected. But the RBNZ surprised investors with comments suggesting an interest-rate rise might not be far off.

On Wednesday, RBNZ Governor Don Brash said he would keep the key interest rate at 5.75 percent. That's two percentage points above rates in the United States.

Rates two points above United States

The Reserve Bank of Australia said it had a neutral bias when it left interest rates at 5 percent on Monday.

It is watching the threat from the slowdown in Asia, but the likeliest step would be to increase rates sometime next year.

Brash surprised analysts by hinting at a possible rate rise in New Zealand.

"There are an increasing number of indicators suggesting that the economy may be operating slightly above full capacity," Brash said in a statement.

"The current situation would point to an early increase in the official cash rate were it not for the risk that the international environment will turn out to be even weaker than assumed."

Investors sell off

Investors sold off stocks on the prospect of the rate rise. Wellington's benchmark NZSE40-Capital index was off 0.1 percent at 2,047.58.

Economic prospects look better in Australia and New Zealand than the rest of the Asia-Pacific nations. That's why central banks there have one eye on inflation, which might cause them to raise rates.

Amid the global slowdown, most of world's central banks have been cutting rates. The central Bank of Japan made a shock move on Tuesday to inject more cash into that economy, where rates are already virtually zero.

New Zealand's economy, with a large farming component, is also relatively insulated. It benefited less from the tech run up and is now being hurt less in the slowdown.