Reserve Bank Governor Alan Bollard says he is aware of the danger of raising interest rates too high, but did not think he had done so.
Last week Bollard unexpectedly raised the official cash rate to 8 per cent, up 25 basis points, citing medium-term inflation concerns.
"We're
certainly aware of the danger of mistiming and being just over the top and pushing it down the other side in a way we just wouldn't want to do, but we don't think that's what's happening," Bollard said on Friday.
New Zealand's interest rates are the highest among industrialised countries, encouraging investors to buy its currency and invest money here.
Bollard agreed the dollar was at exceptional levels, but was not convinced the RBNZ's tightening policy was to blame, with other currencies also at high levels. "We're saying we believe it's unjustifiably high even though the dairy price has gone up, which in itself would have justified some increase in the rate but not to these levels.
"I'm certainly not convinced it's us pushing up the exchange rate, we're in the middle, price signalling."
Bollard said tentative signs of a slowdown in some sectors were not enough to contemplate a rate cut.
"There's some early indications that particularly housing is starting to slow but that's the rate of increase, not the levels.
"We've got to see evidence that the household sector rate of increases slows down, and that household consumption moderates. We'd expect to see parallel stuff happening on household financial data and anything else that might be important for medium term inflation pressures."
- REUTERS
