New Zealand's central bank is expected to keep interest rates steady next week amid signs of cooling consumer demand and global market turbulence, but it will remain alert to the threat of inflation, a Reuters poll shows.
The Reserve Bank of New Zealand is seen holding its official cash rate at 8.25 percent, the highest in the industrialised world, and reiterate its intention to leave it there in the coming months to keep a lid on inflation, which rose above its target band in the fourth quarter.
"If the world was still humming along without supposed problems, we probably would be looking at higher rates," said Robin Clements, chief economist at UBS NZ. "Whilst there are encouraging signs that the domestic economy is slowing, without the external side they might have been more willing to put the foot on the brakes a bit harder."
All 16 analysts surveyed by Reuters predict the central bank will leave interest rates on hold at its policy review on January 24, with a median risk for a 25 basis point increase put at just 13 percent. As a result of the four interest rate increases by the central bank last year to rein in robust domestic demand, growth in consumer spending and house prices have started to slow.
The central bank held rates steady last month but said it was likely to keep policy unchanged for longer than previously expected because of increasing inflation worries. Data on Thursday showed inflation picked up more than expected in the fourth quarter, with consumer prices rising 3.2 percent from a year earlier on higher oil and food prices and above the RBNZ's 1-3 percent target band.
Analysts said given the central bank expects annual inflation to average 3.1 percent in the first half of 2008 and 3.4 percent in the secou can't see anything ine of the target concerned that in additi expected personal income tax cuts in an election year would add to inflationary pressures.
Last month dairy giant Fonterra Co-operative Group, the country's biggest company, raised its forecast payout to farmers for the current season, which is expected to pump around NZ$3.2 billion ($2.4 billion) into the NZ$170 billion economy.
The government announced last month it would cut personal taxes in this year's budget, although Finance Minister Michael Cullen has pledged not to add to inflationary pressures.
Reflecting the tight level of use of resources within the economy, the NZ Institute of Economic Research's fourth-quarter survey of business opinion showed on Tuesday capacity utilisation rose to 92 percent from the previous quarter's 91.34 percent.