Bollard holds rates but warns about government spending
Reserve Bank governor Alan Bollard surprised nobody by leaving interest rates unchanged but he used his statement to take a swipe at government spending.
Thursday, October 25th 2007, 9:55AM
by Jenny Ruth
Bollard left his official cash rate unchanged at 8.25%, as just about all economsits had expected."Despite ongoing surpluses in the government's operating balance, fiscal policy is contributing to inflationary pressure," Bollard said in his statement.
"Any further easing in fiscal policy beyond that already announced will add further upside risks to medium-term inflation," he said.
"There's a clear message there," says Westpac chief economist Brendan O'Donovan, adding that Bollard also noted that international concerns, one of the main reasons Bollard left rates unchanged in September, have abated somewhat.
Craig Ebert, an economist at Bank of New Zealand, says Bollard's warning to the politicians is "really laying down some swords" but that further fiscal stimulus looks inevitable.
"The bank believes fiscal policy is already contributing to inflationary pressures and any more stimulus is going to be an inflationary concern for the bank."
Nick Tuffley, chief economist at ASB Bank, says underlying inflation pressures still look like they're going to be very slow to moderate.
Bollard did acknowledge that housing market activity, long one of his biggest headaches, is finally showing signs of moderating.
Tuffley says that anecdotal evidence suggests that Bollard may be surprised, though not necessarily alarmed, at just how much impact high interest rates are now having on the housing market. "I don't think that's going to change the picture."
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