Bloomberg News

New Zealand Rate Outlook May Reflect Australia, English Says

December 07, 2011

Nov. 29 (Bloomberg) -- New Zealand Finance Minister Bill English said domestic interest-rate decisions may be influenced by a shift in Australia’s monetary policy stance, adding to the case for a longer period of record-low borrowing costs.

“The Australians have shifted their outlook for rates and we’re fairly tied in with the Australian economy so that may flow through to here,” English told Bloomberg Television today.

The Reserve Bank of Australia cut borrowing costs for the first time in 31 months on Nov. 1, prompting most economists to forecast low rates throughout 2012. In New Zealand, the central bank has kept the official cash rate at a record-low 2.5 percent since March and two banks yesterday forecast no change in the benchmark until December next year.

Asian central banks may be preparing to lower rates in coming weeks as economists scale back growth forecasts for the region. Thailand will cut its benchmark one-day bond repurchase rate tomorrow, all 16 economists surveyed by Bloomberg News predict. Pakistan’s central bank may add to its previous rate cuts or refrain from raising borrowing costs, a separate survey showed.

New Zealand’s rate outlook “is dependent on the European story,” English said, adding that the Reserve Bank of New Zealand sets interest rates independently of the government.

ANZ National Bank Ltd. and ASB Bank Ltd. yesterday said central bank Governor Alan Bollard can keep borrowing costs unchanged until December. Previously they forecast a rate rise in June.

Extended Pause

The New Zealand economy may be weaker than expected in the first half of 2012 because of the deteriorating situation in Europe, enabling local interest rates can stay lower for longer, ANZ’s Wellington-based economists said in an e-mailed report.

The Organization for Economic Cooperation and Development yesterday lowered its forecasts for New Zealand and Australia’s economic growth. Both nations have scope to lower interest rates in the event of a global slowdown, it said.

“The OECD’s view about Europe, and Australia and New Zealand growth are all fairly similar to what we based our election campaign on,” he said. “While there are clouds on the horizon we are fairly resilient and we now have strong and stable government.”

New Zealand’s government was re-elected on Nov. 26 with the National party securing 48 percent of the vote. Prime Minister John Key is in talks with three parliamentary allies, two of whom have already pledged their backing, to cement his control of parliament.

Crisis Effects

Europe’s debt crisis might affect New Zealand in two ways, either by closure of financial markets in a repeat of the global crisis of 2008, or by spreading into the global economy and weakening commodity prices, English said. Exports make up 30 percent of the South Pacific country’s economy.

New Zealand is in much better shape to withstand a financial crisis than it was three years ago, he said. It also has the “cushioning effect of an exchange rate that has been falling” to offset declining commodity prices, he said.

The price of New Zealand’s commodity exports fell for a fifth month in October, according to an ANZ National index published Nov. 1. The currency has slumped 11 percent against the U.S. dollar the past three months.

--Editors: Brendan Murray, Chris Bourke

To contact the reporters on this story: John Dawson in Hong Kong at jrdawson@bloomberg.net; 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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