Bollard leaves interest rates unchanged

Reserve Bank governor Alan Bollard has left interest rates unchanged, warning that despite the turbulence in international financial markets, the New Zealand economy should continue to grow and that inflation is likely to remain above his 3% target through 2008.

Thursday, January 24th 2008, 9:35AM

by Jenny Ruth

Bollard left the official cash rate (OCR) at 8.25%, having hiked it four times through 2007.

"There was a danger of them getting all swept up" in the global situation but instead the central bank has kept its nerve and delivered "a very good statement," says Craig Ebert, an economist at Bank of New Zealand.

"What they're saying is that there's a lot going on but, on balance, the risks haven't really changed since the December statement and that was leaning on the hawkish side," Ebert says.

The last time the US economy went into a downturn, the New Zealand economy was unscathed. "Domestically, we've got inflation running too high and we need to slow down" and the global situation may simply assist in that, he says.

Darren Gibbs, chief economist at Deutsche Bank, says that Bollard has acknowledged that although the degree of uncertainty has increased, the outlook is little changed from December.

"The inflation pressures are still there and they're still worried about fiscal policy being stimulatory," Gibbs says.

Bollard said that "Ongoing inflationary pressures are underpinned by an expansionary fiscal policy, and rising food and energy prices, which will be under further pressure with the Emissions Trading Scheme in a year's time."

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