New Zealand Reserve Bank holds interest rate unchanged

10:17, March 11, 2010      

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The New Zealand Reserve Bank on Thursday left the benchmark interest on hold at 2.5 percent and reiterated it expects to start hiking the cost of borrowing from the middle of the year.

In his statement on Thursday, Reserve Bank Governor Alan Bollard said the New Zealand economy is recovering broadly as expected and growth is predicted to pick up further through 2010.

"Trading partner activity has recovered a little faster than expected," the statement said. Currently, growth is strongest in China, Australia, and emerging Asia, but is much more muted in other trading partners. At the same time, risks around the global outlook have increased, although not to the extreme levels seen at the height of the crisis," he said in the statement.

"We estimate the New Zealand economy grew at a stronger pace in the December and March quarters than in the prior two quarters. Looking forward, while growth is expected to increase to about 4 percent next year, this is subdued relative to previous recoveries, " he added.

Despite higher business and consumer confidence, Bollard said, households remain cautious. House sales and credit growth remains subdued and business spending is weak.

Inflation is currently at 2 percent and is expected to remain within the target range of 1 to 3 percent over the medium term.

In July 2008, the Reserve Bank reduced the rate from 8.25 percent to 8 percent, which had been the first cut since July 2003.

Last week, Australia's central bank raised interest rates by 25 basis points to 4 percent, the first rise this year.

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