Bloomberg News

Bollard Says New Zealand in Monetary Policy ‘Sweet’ Spot

September 28, 2011

(Updates with Bollard comments in second paragraph.)

Sept. 29 (Bloomberg) -- New Zealand’s central bank is better positioned to weather any fallout from the European and U.S. debt crises than many of its counterparts, according to Governor Alan Bollard.

“From a monetary policy point of view, New Zealand is in a reasonably sweet sort of spot because we can move rates when we need to,” Bollard told Radio New Zealand’s Nine-to-Noon today. “We’re comfortable where things are. We think we are going to have to push them up as we get more housing sector recovery but we’ve got time to wait and watch on that.”

Bollard on Sept. 15 held the official cash rate at a record-low 2.5 percent for a fourth straight meeting, saying worsening global economic and financial risks made it prudent to stay on hold. Twelve of 17 economists surveyed by Bloomberg News expect the rate will be unchanged until next year.

The outlook for the nation’s economy, boosted by rebuilding of earthquake-devastated Christchurch and continued growth in the economies of trading partners like China and Australia, means New Zealand doesn’t need to lower borrowing costs, Bollard signaled in the radio interview.

China’s ‘Soft Landing’

“It looks like China has managed a soft landing and is still growing strongly,” he said. “We do still think there’s a lot of growth in China and in some other east and south Asian countries and other emerging markets. That keeps Australia going and that keeps commodity prices high and that’s good for us.

Commodity prices fell for a third month in August “but so has the New Zealand dollar,” Bollard said. “That means we are still getting good returns from our exports and that’s an important driver.”

The local currency remained over-valued even after recent falls, Bollard said, declining to say what would be a fair value. The New Zealand dollar has declined 12 percent since reaching a record 88.43 U.S. cents on Aug. 1. It bought 77.65 cents at 10:10 a.m. in Wellington.

The central bank forecasts the economy will grow 3.3 percent this year and 2.9 percent in 2012.

“In a pretty mediocre world, New Zealand still looks quite attractive simply from a growth point of view,” he said.

--Editors: Chris Bourke, Tim Smith

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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