Reserve Bank Set To Raise Rates

Wednesday 28 July 2004

New Zealand's central bank is poised to raise its interest rates, already the highest in the developed world, and leave the door open to more hikes to contain inflationary pressures.

By The Landlord

The Reserve Bank of New Zealand is widely expected to raise its cash rate by a quarter percentage point to 6.0 percent on Thursday, as a strong global economy, resilient domestic demand and a softer currency fuel worries inflation will breach the top of its 1-3 percent target band.

The central bank raised its benchmark interest rate in June, the third increase since January, and said further hikes were likely because a stronger than expected domestic economy was causing inflation.

"We believe the RBNZ is unlikely to surprise, delivering the rate increase with a hawkish, albeit milder than June's statement," said Citigroup economist Annette Beacher.

New Zealand has been facing inflationary pressures from a domestic economy driven by a strong housing market and a tight labour market. All 14 economists polled by Reuters expect the RBNZ to raise its cash rate at 9am on Thursday.

The rate is already the highest in the developed world, well above 5.25 percent in Australia, 1.25 percent in the United States and 2 percent in the euro zone.

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