Bollard tipped to tighten rates

Tuesday 8 June 2004

Market economists are confident that Reserve Bank Governor Alan Bollard will tighten interest rates a quarter-turn on Thursday, raising the official cash rate from 5.5 to 5.75 per cent.

By The Landlord

Analysts also expect the tone of the accompanying monetary policy statement to be on the hawkish side, foreshadowing a further tightening later in the year.

The financial markets are "pricing in" another rate hike by the end of the year.

At the last monetary policy statement in March Bollard left interest rates on hold.

At that stage the bank was forecasting economic growth to slow to around 1.75 per cent by March 2006, while the high New Zealand dollar provided an offset to the domestic inflation pressures which had built over two or three years of strong growth.

Since then, however, the economy has proven more resilient than expected and the exchange rate has dropped some 6 per cent from the level the bank's previous forecasts assumed.

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