New Zealand interest rates unchanged

WELLINGTON: New Zealand's central bank left interest rates at a record low of 2.5 percent Thursday but gave an upbeat economic outlook that reported limited fallout from February's Christchurch earthquake.

In a widely expected move, the Reserve Bank of New Zealand said the economy was not yet ready for an interest rate rise after the disaster that killed 181 people and snuffed out a tentative economic recovery.

But the bank said the outlook had improved since March, when it slashed rates 0.5 percentage points to cushion the quake's economic impact, in a measure described at the time as an "emergency" response to the disaster.

"Since then, business confidence and consumer spending have recovered, suggesting the nationwide near-term negative effects of the earthquake have been contained," the bank said.

Bank Governor Alan Bollard said it was possible rates would rise towards the end of the year -- a more hawkish stance than his last assessment, in April, that 2.5 percent was "likely to remain appropriate for some time".

"The pace and timing of increases will be guided by the speed of recovery," he said.

While the quake-hit Canterbury region, estimated to account for 15 percent of New Zealand's gross domestic product (GDP), continued to struggle, Bollard said high commodity prices had boosted the overall economy.

"It appears the negative confidence effect of the earthquake on economic activity throughout the rest of the country has been limited," he said.

Bollard added that the economy, which is heavily reliant on farm exports, still faced challenges from the high New Zealand dollar and signs of weakness in the world economy.

He described the currency, which last week hit its highest level against the greenback since it was floated in 1985, as over-valued but said the Reserve Bank could do little to remedy the situation.

"I don't believe we can fundamentally affect a trend, we're a very small player in FX (foreign exchange) markets," he said.

The New Zealand dollar rose 0.7 US cents to 82.24 US cents after the announcement.

The central bank estimated the economy would grow 4.4 percent in 12 months to March 2012 amid a NZ$15 billion (US$12.3 billion) reconstruction programme in Christchurch and an influx of tourists for the Rugby World Cup later this year.

Growth was then forecast to moderate slightly to 3.6 percent in the year to March 2013.

Copyright AFP (Agence France-Presse), 2011