N.Z. Leaves Rate at 8.25%

New Zealand's central bank Governor Alan Bollard left the benchmark interest rate at a record-high 8.25 percent and signaled that borrowing costs may fall this year as economic growth slows.
TRadingEconomics.com, Bloomberg 4/23/2008 7:07:42 PM

New Zealand's dollar and bill yields fell as investors increased bets that Bollard will cut interest rates by December after he acknowledged the $104 billion economy is slowing faster than he estimated last month. House sales fell to a seven-year low in March and companies surveyed were the most pessimistic about sales since 1991, adding to signs economic growth in 2008 could be the slowest in a decade. The currency has gained 7.8 percent against the U.S. dollar the past 12 months.

New Zealand's dollar fell to 79.34 U.S. cents at 10.15 a.m. in Wellington from 79.87 cents immediately before the statement. The yield on a three-month bank-bill futures contract maturing in December declined 10 basis points, or 0.1 percentage point, to 8.33 percent.

Bollard said a drought combined with falling consumer and business confidence, a declining housing market and slowing global economic growth will impact on New Zealand's economy.

New Zealand's economic growth will slow to 1.5 percent this year, the weakest pace in a decade, compared with 3.1 percent last year, according to the median forecast of 10 economists surveyed by Bloomberg News.

Bollard has kept the official cash rate unchanged since July because inflation is accelerating. Inflation is being fanned by a record-low jobless rate, rising commodity prices and the promise of income-tax cuts this year, said Bollard, who is required by the government to keep annual inflation between 1 percent and 3 percent.

Consumer prices rose 3.4 percent in the year ended March 31. Last month, Bollard forecast inflation would accelerate to 3.7 percent by September before falling to below 3 percent in the second half of 2009.

Food and energy prices are rising and wages may increase in response, adding to inflation pressures, Bollard said.

The jobless rate fell to 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.

N.Z. Leaves Rate at 8.25%