Bollard concerned about higher long term rates

Alan Bollard

Reserve Bank Governor Alan Bollard has taken the unusual step of issuing a statement expressing his concern at a recent rise in long term wholesale interest rates.

If the apparent distortion persisted, it could put unnecessary pressure on the cost of borrowing by firms and households, he said today.

"As we said in our 12 March Monetary Policy Statement, the economic recovery is expected to be very gradual. Furthermore, the risks around the outlook continue to be weighted to the downside," Dr Bollard said in the brief statement.

"In these circumstances we believe the rise in longer term interest rates is unwarranted and inconsistent with the monetary policy outlook.

"As indicated in our March statement, we are projecting interest rates to remain at relatively low levels for an extended period."

A sudden surge in interest rates and the NZ dollar is raising fears than an eventual recovery of the economy could be pushed back.

The statement saw the NZ dollar fall nearly 2 per cent to a low of US$0.5587 from around US$0.5700.

Bank bill futures rose sharply and the yield on government bonds fell up to 16 basis points.

Five-year interest rate swaps, which had gained more than 50 basis points in the past week, fell to 4.83/4.91 per cent from 5.07/15 per cent.

- NZPA