Reserve Bank of New Zealand Raises Interest Rates to 8.25 Percent and a Possible End

The Reserve Bank of New Zealand raised interest rates to 8.25 percent today, but hinted that they have done enough. Central bank Governor Bollard said that rate rises are enough to contain inflation and the strong currency is hurting exporters.

He feels that the high NZD is not sustainable even though price pressures, the labor market and the overall economy remain strong. Clearly, if it was not for the strength of the currency, Bollard would continue to raise rates. But since that is not the case, there will be a nice long pause before rates are raised again. Meanwhile, inflation is also a problem in Australia. Consumer prices increased more than expected in the second quarter, taking the Australian dollar to a fresh 18 year high. This follows a similar rise in producer prices earlier this week. The rise in inflationary pressures is only a mild concern for the Treasury at the moment. Costello indicated that inflation is still consistent with their target but prices remained very constrained. Meanwhile the Canadian dollar lost ground despite higher oil prices. There is a great deal of two-way demand in the currency pair at current levels suggesting that a bottom could still be possible.