New Zealand's dollar rose as traders bet Bollard has little scope to cut the benchmark anytime soon because the longest economic expansion in 60 years is fanning inflation. A U.S. slowdown that prompted the Federal Reserve to reduce rates this week may spread to New Zealand later this year, allowing Bollard to lower borrowing costs, said economist Khoon Goh
Bollard raised borrowing costs four times between March and July last year, and has since kept the official cash rate unchanged as the housing market and consumer spending slows.
New Zealand's benchmark rate is 7.75 percentage points higher than Japan's, making the currency a favorite for the carry trade, in which investors borrow funds in countries with lower interest rates and invest them in places where the returns are higher.
Annual inflation accelerated to 3.2 percent in the fourth quarter, above the 1 percent-to-3 percent range the central bank is required to target. In December, Bollard forecast inflation may reach 3.5 percent this year and will stay above the target until mid-2009.