Rate rise this week a close call

Monday 26 April 2004

The central bank is expected to leave interest rates unchanged this week but the odds have narrowed as a fall in the Kiwi dollar is seen fuelling inflationary pressures from a housing boom.

By The Landlord

The Reserve Bank of New Zealand (RBNZ) opted in march to wait and see if a slowing economy would dampen inflationary pressures from a robust domestic economy, after a surprise quarter percentage point rate hike in January, but warned it had another rise in the wings if necessary.

Since then data has indicated that waning immigration and weak export returns look set to curb still-buoyant domestic demand, while inflation in the first quarter remained muted.

Economists said the issue is whether the RBNZ can stomach the upside risks to the inflation outlook from the Kiwi dollar's 5% fall since its March monetary policy statement.

"We believe the RBNZ should invest in some deep breathing exercises and keep the OCR on hold," Westpac chief economist Brendan O'Donovan said.

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