WELLINGTON, New Zealand (AP) — New Zealand's central bank held its key interest rate at 3 percent Thursday as a weak, slow recovery continues, and the bank signaled it's in no hurry to hike rates.
This second consecutive rate hold follows two successive quarter-point increases that lifted the rate to 3 percent from its record low of 2.5 percent, where it was held for 13 months to counter the worldwide recession.
The Reserve Bank said some domestic data had turned "out weaker than projected," as "continued household caution has seen consumer spending and housing market activity remain muted, and many firms have become less optimistic about their future prospects."
Disappointing gross domestic growth figures for the June quarter showed the economy grew a mere 0.7 percent in the year to June 30, and the consensus of observers suggests the economic recovery remains patchy and fragile.
Reserve Bank Governor Alan Bollard said that continued high export prices, along with reconstruction and repairs after a magnitude-7 earthquake in the southern city of Christchurch that damaged 50,000 homes, would support activity over the coming year.
While expecting inflation to move higher because of this month's rise to 15 percent of the good and services tax, up from 12.5 percent, Bollard said the subdued state of domestic demand suggested the resulting inflation spike would have limited impact. Currently, annual inflation is at 1.5 percent.
He warned that downside risks continue to cloud the global growth outlook with high public and private debt inhibiting recovery in many developed economies. But he noted that strong growth continues in China, Australia and emerging Asia, offsetting the wider risk.
Observers noted the dovish outlook of the review, as the bank delayed further lifting its key rate into 2011.
"While it is appropriate to keep the OCR (official cash rate) on hold today, it remains likely that further removal of monetary policy support will be required at some stage," Bollard noted.
The New Zealand dollar response was muted, rising 15 points to US$0.7449 half an hour after the release, from US$0.7434 ahead of the announcement.
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