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NZ central bank holds interest rate at record low

NZ central bank holds interest rate at record low

New Zealand's central bank left its key interest rate unchanged at a record low 2.5 percent Thursday, seeking to nurture a fragile economic recovery that's under threat from a strong currency.
It was the fourth successive review to hold the rate steady after the Reserve Bank slashed the official cash rate to 2.5 percent from 8.25 percent between July 2008 and late April this year.
Reserve Bank Governor Alan Bollard said the bank saw no reason to begin withdrawing monetary policy stimulus.
"There are welcome signs that economic activity is growing again," Bollard said, citing rebounding activity in the country's trading partners and improving market sentiment.
"However, there remain significant vulnerabilities and challenges to be worked through in many economies. This process could weigh on global growth," he said.
He said he expected the rate would stay at the current level until the second half of 2010.
Bollard said the New Zealand housing market had reversed some of the decline in prices experienced over the past couple of years and a very gradual increase in household spending appeared to be taking place. Government spending was also supporting activity but business spending remained weak and credit growth was subdued.
The strength of the New Zealand dollar against the U.S. dollar and other currencies was hindering the recovery. New Zealand's economy grew slightly in the quarter ending in June, the first expansion in a year and a half.
"The high level of the New Zealand dollar has limited the scope for exports to contribute to the recovery and reinforces a bias toward domestic expenditure," Bollard said. "The current composition of growth continues to raise questions about its sustainability. These concerns would intensify if credit growth began to propel stronger domestic demand."
Bollard said inflation was expected to continue tracking comfortably within the bank's target range of 1 to 3 percent over the medium term.
"The forecast recovery in economic activity is based on fiscal and monetary policy continuing to provide substantial support to the economy," he said. "We think such support remains appropriate."


Updated : 2021-05-06 19:08 GMT+08:00