New Zealand lifts interest rates again


New Zealand has seen its second interest rate rise in four weeks

By Geoff Hiscock
CNN Asia Business Editor

WELLINGTON, New Zealand (CNN) -- New Zealand's central bank has lifted interest rates for the second time in a month, raising the official cash rate on Wednesday from 5 percent to 5.25 percent.

The rise was expected, following the release of price data Tuesday and because of concerns about inflation expressed earlier by the Reserve Bank of New Zealand governor Don Brash.

On Tuesday, the government said the consumer price index rose 0.6 percent in the March quarter, for an annual figure of 2.6 percent. The central bank's inflation target range is zero to 3.0 percent.

Announcing the rise Wednesday, Brash said that with the economy in a buoyant state and demand growing strongly, the outlook for inflation justified the "moderate" rise.

"All in all ... a further moderate adjustment in the official cash rate seems appropriate," he said.

New Zealand lifted interest rates by a quarter of a percentage point on March 20, becoming the first country in the Asia Pacific region to tighten rates since the September 11 terror attacks in the United States.

March headed in same direction

Brash said it was clear from the December quarter GDP -- which showed a 0.6 percent increase on the previous quarter -- that demand had been growing strongly, and most information for the March quarter "points in the same direction".

Internal demand jumped 2.5 percent in the December quarter, reflecting higher consumer spending, a rise in new housing development and increased business investment.

Brash said Wednesday that business and consumer confidence continue to be high. Retail spending had been "very strong" and housing sales suggested a buoyant residential property market.

He said that while the world economy was not as buoyant as New Zealand's, it looked to be continuing its gradual recovery.

Economists are forecasting growth of about 2.6 percent this year for New Zealand, which is a leading exporter of agricultural produce, including wool, meat, dairy products, fruit, vegetables and wine.

Outlook for 2003 is 3.7% growth

The outlook for 2003 is for GDP growth to rise sharply to 3.7 percent.

Releasing the December quarter statistics late last month, New Zealand government statistician Brian Pink reported that growth in 2001 was 2.4 percent, compared with 3.8 percent in 2000.

Wednesday's rate rise was expected. IFR Asia Pacific chief economist George Worthington noted earlier this week in his regional outlook that New Zealand's central bank was "in a hurry to return monetary policy to a more neutral, or at least less stimulatory, region".

A "neutral" interest rate in New Zealand is thought to be about 6 percent, according to analyst IMA Asia.

It said this month that even with rate rises, inflation was likely to stay above Brash's allowable range of zero to 3.0 percent until 2004-05, so that "even tougher action cannot be ruled out".