New Zealand Will Take Time Raising Rates, Reserve Bank’s Bollard Says

Reserve Bank of New Zealand Governor Alan Bollard said the central bank is in no rush to raise interest rates even as Europe’s sovereign debt crisis and a U.S. slowdown are having a minimal impact on economic growth.

Gross domestic product rose 0.5 percent in the three months through June from the prior quarter, according to the median of 15 estimates in a Bloomberg News survey before a government report tomorrow at 10:45 a.m. in Wellington. The economy grew 0.8 percent in the first quarter.

“Why didn’t we move to increase rates last time; because of the significant global risks out there,” Bollard said during a Euromoney conference in New York. “At the moment we are not being particularly impacted in the short term by these risks but we are a big global trader and we know that when Lehman’s happened on this side of the world in 2008 we had about 30 seconds before it hit New Zealand.”

Investors are betting that Bollard will keep the official cash rate at 2.5 percent until next year as a rising local dollar, aftershocks in Christchurch and fallout from the European debt crisis curb the recovery. An extended rate pause may limit gains in the kiwi dollar, the best performer among Group of 10 currencies in the past six months.

“We do have a picture where we still do expect to have to push rates up,” Bollard said. “However we don’t think there is any particular rush to do that.”

Private Sector Squeeze

The New Zealand dollar advanced 8.9 percent against the U.S. dollar in the three months through June, the biggest rise since the third quarter of 2009. A stronger currency makes exporters’ goods and services more expensive to overseas customers. The kiwi weakened 1.2 percent to 81.46 U.S. cents at 1:16 p.m. in New York.

“The New Zealand dollar is squeezing the private sector leading to more moderation in the economy which is helping monetary policy but is not the choice of instruments we would choose if had full ability to that,” Bollard said.

Traders expect the central bank to increase the benchmark interest rate by 37 basis points in the next 12 months according to a Credit Suisse Group AG Index based on swaps.

“We’ve had to downgrade our own trading partner growth forecasts,” Bollard said. “Our trading partners are the United States, euro zone, Asia and of course of Australia, pulling out of the financial crisis initially with a very strong recovery and then subsiding in to a decidedly soggy picture with rather unclear growth focus.”

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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