New Zealand’s central bank yesterday raised the official interest rate for the first time in nearly three years from a record low of 2.5 percent.
Reserve Bank of New Zealand Governor Alan Bollard raised the official cash rate by a widely anticipated quarter percentage point to 2.75 percent, saying the economy was entering its second year of recovery.
“Given this outlook and as previously signaled, we have decided to begin removing some of the monetary policy stimulus that is currently in place,” Bollard said. “The further removal of stimulus will be reviewed in light of economic and financial market developments.”
PHOTO: BLOOMBERG
The official rate had been unchanged since April last year, with the central bank keeping rates low to offset the impact of a long recession and the global financial crisis.
The last time Bollard raised interest rates was in July 2007, when the official rate was lifted to a high of 8.25 percent.
New Zealand slumped into recession at the start of 2008, emerging only in the second quarter of last year with economic growth picking up to 0.8 percent in the three months to December compared with the previous quarter.
Bollard said the recovery in the economies of major trading partners was continuing, particularly in Asia, and export commodity prices had risen sharply in recent months.
Economic growth in New Zealand is expected to be around 3.5 percent this year and next, although household spending is expected to remain subdued, the central bank said.
Meanwhile, South Korea’s central bank yesterday kept its key interest rate at a record low for a 16th month, citing potential risks to the export-driven economy from the eurozone debt crisis.
However, the Bank of Korea, while freezing the seven-day repo rate at 2 percent for this month, said it would conduct future policy based on “price stability” — signalling a possible monetary tightening later in the year.
The bank cited eurozone woes and China’s moves to counter a liquidity-driven property price boom as possible downside risks, but also expressed optimism over the outlook for South Korea.
“In the coming months, the [South] Korean economy appears set to sustain its growth trend, helped by the favorable development of exports and increasing consumption and facilities investment,” it said in a statement.
Governor Kim Choong-soo told a press conference the central bank would take care to maintain price stability and highlighted the importance of not missing the “right time” to start tightening.
The bank has forecast growth of 5.2 percent for this year.
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