The RBNZ Expects Interest Rates To Remain At 2.50% Till Mid 2010

The Reserve Bank of New Zealand decided today to keep interest rates at its low level of 2.50% for the seventh straight meeting. Allan Bollard the Governor of the RBNZ said the bank will maintain its policy till mid-2010, before deciding to raise interest rates.

Weak domestic spending in New Zealand, besides the decline in house prices, are affecting economic recovery negatively that is forcing the central bank to keep rate steady at its low levels in order to support the economy and the credit sector, in addition to encouraging households to increase spending.

Governor Bollard added that economic recovery is 'relatively sluggish', as demand remains weak due to high borrowing costs for the housing sector, and high interest rates in the business sector, which is limiting companies' capital expansions. House prices declined in January, while credit card spending fell for the second straight month in February forcing the central bank to maintain its current policy.

However, the RBNZ aims at keeping borrowing costs between 1% and 3%. Governor Bollard raised his forecasts for prices this year as he is anticipated consumer prices to increase 2% this year compared with earlier forecasts of 1.4%. The RBNZ expects inflation to reach 2.8% by 2011.

Recovery witnessed in New Zealand might help to increase capacity that will be companied with higher inflation rate. The reserve bank expects the New Zealand currency to decline in the upcoming period leading to higher imports costs, which is causing inflationary pressures. Thus, the RBNZ expects interest rates to be raised in the second half of this year.

The New Zealand dollar declined against its American counterpart after the release of today's decision, reaching 0.7007 levels which is the lowest in today's trades. The pair is approaching the support level of 0.6985 that the pair been trading around in the past six weeks.

Ecpulse

disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk