Alan Bollard had an exquisitely difficult task in crafting yesterday's interest rate decision. It must have looked like a beggar's crossroads, leading to disaster in both directions.
Not to have raised the official cash rate risked taking the pressure off retail interest rates and inflation just when thereare signs that - at last - monetary policy is getting some traction in the mortgage belt.
But too stern and hawkish a statement risked raising expectations in the wholesale markets of more upside in the OCR yet. That would have added further upward pressure to a dollar already at export-withering levels.
A lesser man might have been tempted to call in sick.
The statement he came up with deftly found a middle course.
The OCR has gone up, avoiding any significant slippage in the swap rates from which fixed-rate mortgages are priced. But the explicit, albeit necessarily conditional, statement that that would probably be the last increase took enough of the lustre off the interest rate outlook to see the dollar sold off.
That relief may be temporary. There are other forces acting on the exchange rate beyond his control, like commodity prices and a weak US dollar.
But so far, as BNZ chief economist Tony Alexander put it: "It looks like they have pulled it off."
