New Zealand’s central bank increases its interest rate to a record high 8 percent from 7.75 percent amid the speculation of surging inflation.
Bank heightened the official cash rate by quarter-percentage-point is bank’s third consecutive tightening this year and has now put interest rates at their highest level since the official cash rate was introduced in March 1999.
The Reserve Bank amid fear of increasing inflation as it suspected on strong domestic demand, a buoyant house market, strong employment and investment intentions, robust consumer confidence and increasing government spending could pressures the national inflation to surge.
The bank aims to ensure that inflation remains within a 1 percent to 3 percent range over the medium term. In a statement explaining the decision, Alan Bollard, governor of the central bank, warned that
A sustained period of slower growth in domestic activity will be required to alleviate inflation pressures
New Zealand’s current inflation rate slowed to 2.5 percent in the three months ended March 31, from 2.6 percent in the fourth quarter. But domestic inflation, which excludes import prices, remains at an uncomfortably high 4.1 percent.
Increased interest rates arrows the fear among the investors as market were unaware and unexpected about the premier bank’s decision. New Zealand’s central bank is set to thwart inflation worries and it has left investors in dilemma as it is difficult to predict about the further surge of bank rate. But, some experts praise the premier bank’s decision and to curb the further apprehension about the bank rate bank should tighten its monetary policy further without reviewing the impact of previous interest rate rises.
The surprise rate increase pushed the currency to its highest level $0.7574. The Kiwi dollar has long been one of the main targets of the global carry trade, where investors borrow cheaply in the currencies of countries with low interest rates, such as Japan, in order to buy into high-yielding currencies.
With the increases bank rates country’s economy expected to grow with the jubilant 3.1 per cent in the year to the end of March 2008, which were on 1.7 per cent in the previous year.
Image: feelinggreat
Via: channelnewsasia
