RBNZ Rate Hike And Commentary

The Reserve Bank of New Zealand raised its so called overnight cash rate to 7.25%, the highest such rate for a developed country.

Alan Bollard, the kiwi Alan Greenspan, made a rare appearance on Asian Squawk Box with some comments about the rate hike and what's ahead for New Zealand's economy.

In some ways the NZ economy is firing on all cylinders, unemployment is running at 3.4%, consumer spending is hot (perhaps too hot as debt is quite high) and inflation is on the high side near 3%.

The RBNZ forecasts inflation to run at 3.5% in 1H 2006 and slowdown to 2.75% in H2 2006.

The high NZ dollar makes it difficult for exporters but the rates need to be high for fear of overheating so there is a bit of a dilemma that Bollard says will likely result in the kiwi going lower, he says that current levels between the kiwi and other currencies are unsustainable.

Bollard says that monetary policy is working as growth has slowed from around 5% to 3% now. They see no prospect for easing to start anytime soon due to visibility for continued heavy household consumption with not much savings.

From a personal standpoint I can say that when I was there I saw a lot of banks and a lot of commercials for equity loans from banks.

Seeing Bollard get interviewed was interesting in that, not surprisingly, he is a little more accessible than Greenspan and can afford to be a little more plain talking about what he sees and and what he is thinking. Obviously Greenspan can't be completely candid but Bollard can be, almost.

I may be the only who cares about this.