New Zealand Leaves Key Interest Rate at Record High


New Zealand's central bank left its benchmark interest rate unchanged at 8.25 percent, saying record-high borrowing costs haven't yet stemmed inflation.

``The labor market remains tight, domestic income growth continues to expand on the back of strong commodity prices and core inflationary pressures persist,'' Reserve Bank Governor Alan Bollard said in a statement released in Wellington today.

Bollard, who raised interest rates four times between March and July, predicts inflation will be at the top of the 1 percent-to-3 percent band he targets until late 2009. The central bank should wait to see whether consumer spending and demand for housing slow further before contemplating a rate cut, said economist Craig Ebert.

``Local inflation pressures remain intense and the bigger risk is that these don't abate enough, if at all, over the period ahead,'' Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington, said before today's decision was announced.

The New Zealand dollar bought 75.31 U.S. cents at 9:07 a.m. in Wellington from 75.42 cents immediately before the statement.

The current benchmark is consistent with the inflation target, Bollard said today. Still, government spending or tax cuts, rising world food prices and the direct effects of a proposed emissions trading plan are risks to inflation, he said.

``Despite ongoing surpluses in the government's operating balance, fiscal policy is contributing to inflationary pressure,'' Bollard said. ``Any further easing in fiscal policy beyond that already announced will add further upside risks to medium-term inflation.''


Bloomberg
10/24/2007 2:02:40 PM