New Zealand Central Bank Likely to Impose Rate Rises

15 July 2011

It looks increasingly likely that the central bank in New Zealand will raise interest rates by the end of the year, after a report on manufacturing and farming showed the fastest quarters of growth in more than a year. Previously economists had been forecasting rate rises by January, but the GDP has increased by 0.8% during the first quarter of this year, which is more than twice the forecast of a 0.3% expansion.

 

At the moment interest rates in New Zealand are at a record low of 2.5%, and the dollar is currently at its highest since currency controls ended in 1985. Last month the Reserve Bank Governor, Alan Bollard indicated that the rate increases would be guided by the speed of the economic recovery following the Christchurch earthquake in February.

 

Six out of eleven economists surveyed by Bloomberg now expect a quarter of a percent rise by December. The rate was cut by half a percentage point in March in order to boost economic confidence following the earthquake.

 

The nation is due to host the Rugby World Cup in September and October, and this is expected to give a further boost to the economy as 85,000 visitors are expected to attend. Rebuilding of Christchurch has already begun, and overall, business confidence in New Zealand’s economy is high.

 

However the picture isn't completely rosy as there are concerns that the global economy could still adversely affect New Zealand, and there are concerns that attendance at the Rugby World Cup and reconstruction after the earthquake may be weaker than anticipated.

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