Hawkish Reserve Bank raises rates

Monday 14 June 2004

Reserve Bank governor Alan Bollard has raised interest rates, as expected, citing the economy’s strong growth over an extended period, and flagged that further rate hikes are likely.

By The Landlord

The central bank has been expecting growth to slow due to factors such as the high New Zealand dollar and declining population growth.

"But activity has continued to prove stronger than expected, and stretched productive resources have caused inflation pressures to increase across a range of industries," Bollard said on announcing his decision to raise the official cash rate (OCR) from 5.5% to 5.75%.

The decision was unanimously anticipated by economists, a contrast to the central banks’ previous decisions this year which have been viewed as finely balanced.

In the wholesale interest rate market following the announcement, the 90-day bank bills, from which floating mortgage rates are priced, rose from 5.99% to 6.04%.

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