N.Z. Institute’s Eaqub Says Central Bank Shouldn’t Raise Rates

Shamubeel Eaqub, principal economist at the New Zealand Institute of Economic Research Inc. in Wellington, comments on the outlook for the New Zealand economy and interest rates. He made the remarks to reporters and clients today in Wellington after releasing the institute’s quarterly forecasts.

On the outlook for domestic demand:

“The economy is in a soft patch. The household is not spending a lot. When it comes to being a retailer and trying to sell to these people, it doesn’t feel very good.

‘‘We don’t think this is a double dip, but it’s pretty close to what you could get. We’re looking at the economy barely treading water in the third quarter and the fourth quarter. The summer period won’t be very nice.”

On the outlook for interest rates:

“The Reserve Bank has plenty of room to wait for interest rate increases.

‘‘Inflation is very subdued. This is nothing to worry about yet. The Reserve Bank is probably not going to raise interest rates until the middle of next year.

‘‘The communication from the Reserve Bank has been much more consistent with an acknowledgment that there needs to be more nurturing of economic growth.

‘‘For a mid-2011 recovery to happen we need to make sure interest rates are on hold for some time to try and nurture the recovery in the economy.’’

On the currency:

‘‘It’s probable the New Zealand dollar is going to be higher for longer, and that is a real problem. There hasn’t been much good news for exporters. A higher exchange rate and risks to global demand suggest exporters will continue to face a challenging environment for some time.’’

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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