Bloomberg News

N.Z. Extends Interest-Rate Pause as Growth and Inflation Slow

December 05, 2012

New Zealand’s central bank extended a period of record-low borrowing costs that began in March last year as rising unemployment and falling retail sales slow the economic recovery and contain inflation.

Reserve Bank Governor Graeme Wheeler left the official cash rate at 2.5 percent, according to a statement released today in Wellington. The decision is the former World Bank official’s second on borrowing costs since he took over from Alan Bollard in late September.

Wheeler is betting that weakness in the economy doesn’t justify a rate cut because earthquake-related construction and housing investment will boost growth next year. Economists forecast that benign inflation gives him scope to delay raising borrowing costs until the second half of next year, or later.

“Given the outlook for inflation, we think it likely that the RBNZ’s central projection will point to yet another small delay in the expected timing of the first policy tightening,” Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland, said ahead of the statement. He doesn’t expect a rate rise until the first quarter of 2014.

New Zealand’s dollar gained, buying 82.75 U.S. cents at 9:02 a.m. in Wellington from 82.54 cents immediately before the statement. Today’s decision was forecast by all 16 economists in a Bloomberg News survey.

Annual inflation slowed to the weakest pace in more than 12 years in the year through September, and fell beneath the 1 percent to 3 percent range the central bank targets, as a stronger currency made imports cheaper.

The New Zealand dollar has gained 6.1 percent the past 12 months, the best performing Group of 10 currency.

The country’s jobless rate unexpectedly rose to a 13-year high of 7.3 percent in the third quarter, as retail sales fell, adding to the case for gross domestic product to slow in the second half of the year. Still, construction expanded the most in 10 years in the July-September period, boosted by rebuilding in the South Island city of Christchurch which was devastated by earthquakes in 2010-11.

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


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus