Brash raises rate to 5.25%

By Phil Boeyen, ShareChat Business News Editor

Wednesday 17th April 2002

Lower than expected inflation data has not stopped upward momentum for interest rates with the Reserve Bank raising the official cash rate by 25 basis points to 5.25%.

Consumer price index figures released on Tuesday showed March-end annual inflation at 2.6% was lagging the Reserve Bank's own projections of 3% however a number of economists picked the bank would still implement a 25-point rise.

Governor, Don Brash, says that since the bank's latest comprehensive review of the outlook for inflation last month, things "have on balance evolved very much as expected at that time."

"It is clear from December quarter GDP data that domestic demand has been growing strongly, and most information for the March quarter points in the same direction. Retail spending has been very strong, and house sales suggest a buoyant residential property market. Both business and consumer confidence continue to be high.

"The world economy too, though not nearly as buoyant on average as the New Zealand economy, appears to be continuing a gradual recovery."

Dr Brash says that given the outlook for inflation, a further moderate adjustment in the official cash rate seems appropriate.

The market is unlikely to react much to the rise, which has been widely anticipated.

Canada yesterday became the first country in the Group of Seven industrialized nations to increase interest rates following last year's worldwide cuts in the wake of September 11. The Bank of Canada raised its overnight rate from 2% to 2.25%.

Inflation figures from the UK and the US yesterday showed slight increases but market commentators in both countries are doubtful that the inflation data alone will lead to increased interest rates.

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