N.Z. Leaves Key Rate Unchanged

New Zealand's central bank left the benchmark interest rate at a record-high 8.25 percent, saying slowing economic growth won't relieve pressure on inflation until next year.
TradingEconomics.com, Bloomberg 3/5/2008 3:36:12 PM

Bollard has little scope to cut rates after raising his inflation forecasts and reiterating that the key measure of prices won't return below his 3 percent limit until the second quarter of next year. New Zealand's dollar rose as investors reduced bets that borrowing costs will fall this year.

New Zealand's dollar bought 80.24 U.S. cents at 10:20 a.m. in Wellington from 79.82 cents immediately before the report.

Bollard, who is required by the government to keep annual inflation between 1 percent and 3 percent, said a proposed emissions-trading plan will increase the costs of fuel and electricity from 2009, adding to pressure on prices. The central bank will only respond to any second-round effects of this plan.

Consumer prices are projected to rise 3.7 percent in the year ending Sept. 30 from 3.2 percent in the 12 months ended Dec. 31. Annual inflation will slow to 2.8 percent by June 2009, the central bank forecasts.

The central bank cut its economic growth forecast for 2008 to 1.9 percent from the 2.6 percent pace estimated in December. Economic growth will average 2 percent in the three years to March 2011, the central bank forecasts.

A U.S. economic slowdown increases the likelihood of weaker growth for New Zealand's trading partners, Bollard said. At the same time, a drought has curbed milk production and raised costs for farmers.

Fanning New Zealand inflation, the jobless rate fell to a record 3.4 percent in the fourth quarter. The labor shortage sparked a record 3.5 percent wage increase in the fourth quarter from a year earlier, according to government figures.

House sales fell 31 percent to a seven-year low in January, according to the Real Estate Institute. The rate on a two-year mortgage averaged 9.5 percent in January from 8.2 percent a year earlier, according to central bank figures.

N.Z. Leaves Key Rate Unchanged