No hurry to lift rates, Bollard says

Reserve Bank Governor Alan Bollard has told an audience in the United States that problems in Europe and other global risks means he is in no hurry to lift the Official Cash Rate. Photo / Mark Mitchell

The European debt problems and other global risks mean Reserve Bank Governor Alan Bollard is in no hurry to raise the benchmark official cash rate, he told a conference in New York yesterday.

"Why didn't we move to increase rates last time? because of the significant global risks out there," Bloomberg Newswire reported Dr Bollard as telling the Euromoney conference.

"At the moment we are not being particularly impacted in the short term by these risks but we are a big global trader and we know that when Lehman's happened on this side of the world in 2008 we had about 30 seconds before it hit New Zealand."

At the September Monetary Policy Statement last week, Dr Bollard indicated the surprising strength of the local economy meant that except for the deteriorating international outlook, he would have reversed his March post-quake insurance cut which took the OCR to a record low of 2.5 per cent.

"We do have a picture where we still do expect to have to push rates up," Dr Bollard told the conference yesterday. "However we don't think there is any particular rush to do that."

The New Zealand dollar rose 8.9 per cent against the US dollar in the three months to June, hampering the export sector.

"The New Zealand dollar is squeezing the private sector leading to more moderation in the economy which is helping monetary policy but is not the choice of instruments we would choose if had full ability to that," Dr Bollard said.

Dr Bollard said the Reserve Bank had been forced to downgrade its growth forecasts for New Zealand's key trading partners including Australia, which had pulled out of the financial crisis "initially with a very strong recovery and then subsiding in to a decidedly soggy picture with rather unclear growth focus".