New Zealand leaves rates on hold
 |
Growth in New Zealand is expected to exceed 3 percent next year.
Story Tools
YOUR E-MAIL ALERTS
|
Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.
Or, visit Popular Alerts for suggestions.
|
|
(CNN) -- New Zealand's central bank has left its key interest rate unchanged at 5.0 percent but flagged a likely increase in the year ahead.
New Zealand's decision, announced Thursday, comes after neighboring economy Australia opted Wednesday to lift rates by a quarter of a percentage point to 5.25 percent.
Despite better than expected economic growth in 2003, the Reserve Bank of New Zealand (RBNZ) chose not to move because of the strong New Zealand dollar, analysts say.
The New Zealand currency is trading at 64.56 U.S. cents after touching 65.09 cents Wednesday, its highest in more than six years against the greenback.
It is up more than 23 percent so far this year, which puts pressure on those exporters who price contracts in U.S. dollars. It has also appreciated in the past two months against the euro, yen and Australian dollar.
Reserve Bank of New Zealand Governor Alan Bollard said Thursday that "small increases" in the official cash rate might be needed over the next year to ensure inflation stayed within its target range of 1 to 3 percent.
New Zealand last moved on rates in July, when it cut by a quarter of a percentage point to 5.0 percent.
HSBC Australia/New Zealand chief economist John Edwards said he still expected rates to rise by 0.75 percentage points in the months ahead.
"Given the reluctance to raise rates apparent in today's (RBNZ) statement, January may be too early for the first move but the first quarter remains a good bet," he noted in a commentary after the announcement Thursday morning.
Bollard said New Zealand's economy continued to perform well in 2003, but growth was "seated in the domestic economy rather than the export sector, where earnings are under pressure from the rising NZ dollar".
He said the central bank would keep a close eye on the currency, with a particular focus on what it means for the export sector and the medium-term path of inflation.
New Zealand's economy is more export-dependent than that of Australia and relies heavily on farm and forestry commodities. Apart from Australia, its main trading partners are Japan, East Asia, Europe and the United States.
According to HSBC, economic growth in 2003 will be 2.9 percent, rising to a forecast 3.2 percent in 2004.
