Alongside the decisions of other central bankers including the Reserve Bank of Australia and the Bank of England, the Reserve Bank of New Zealand kept interest rates unchanged at a record high 8.25 percent last night.
Citing that a falling currency and rising commodity prices will continue to support higher inflationary pressures, Governor Bollard?s decision stands amidst an evaluation of the extent of the recent US subprime debacle. Noting that there is a “bit of inflation pressure in the system”, Bollard in statement today noted that central bankers “continue to expect a significant boost to the economy over the next two years.” The increase in growth will support a “sharp rise in world prices”, boosting the likelihood of another round of tightening. However, the notion temporarily fell into questionable territory following the lackluster retail sales data in the month of July. Usually a supportive release for Kiwi enthusiasts, the report showed that consumer spending in its rawest form actually pulled back in the monthly assessment. Printing unchanged for the month, the ex-auto figure declined by 0.2 percent. The release was pessimistic for the economy considering the 0.3 percent advance expected by the investment public. Nonetheless, with the NZDUSD higher, speculators will turn their focus to tonight?s supplementary releases for the week. The manufacturing activity report may helpl boost the notion of further growth (ie rate hikes) with expansionary suggestions.
Written by Richard Lee, Currency Strategist and Terri Belkas, Currency Analyst of DailyFX.com