Cullen says interest rates will fall - report

By NZPA

Thursday 3rd October 2002

Interest rates should start to come down following the change to the Reserve Bank's targets, Finance Minister Michael Cullen told the Financial Times in London today.

The new inflation target band, combined with the Government's drive to forge new trade agreements, were expected to underpin growth, he said in an interview with the influential London business paper.

He was commenting in the change in the bank's inflation target from 0-3 percent to 1-3 percent and the requirement for the bank to focus its outlook on the undefined "medium-term".

The new agreement coincided with the appointment of new bank governor Alan Bollard, who yesterday left interest rates unchanged in his first major decision.

Under Dr Brash, now the shadow finance minister, the bank was on a tightening bias, Dr Cullen told the paper.

The bank raised its official cash rate in four separate 25 basis point moves between March and July, but left it unchanged at 5.75 percent at its August meeting.

He said it was difficult to predict whether the rate be lowered but he said "one would expect that to be the outcome".

"One certainly would expect market anticipation to be less about the prospect for tightening at some stage in the near future."

He also saw less volatility in the New Zealand dollar, although factors such as market thinness would still have an impact.

Dr Cullen said the golden prize for New Zealand was to get a World Trade Organisation Doha round with genuine liberalisation of agricultural trade and the removal of subsidies "because we are confident of our capacity to compete in a free and fair way".

He said he was pushing ahead with bilateral and regional agreements. Negotiations with Hong Kong had foundered over rules of origin, although both sides wanted to proceed, but an agreement with Chile was becoming increasingly likely.

"We think we can now find our way around the dairy issue, which was a real sticking point with Chile as their dairy industry is developing and ours is the industry Godzilla, but we might be able to get talks under way by the end of the year."

New Zealand was still pushing for a deal with the United States but it recognised Australia.

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