god on yer bollard mate. you will save many from future financial hell by clobbering hard now.
be good,
40.
N.Z. Rate Increase Draws Anger of Company Leaders (Update4)
By Tracy Withers
March 9 (Bloomberg) -- New Zealand central bank Governor Alan Bollard risks derailing growth by raising interest rates and driving up the local currency, company executives said.
Bollard yesterday raised the official cash rate to a record 7.5 percent and said he may increase borrowing costs again to slow demand for housing and consumer spending. Companies say they'll bear too much of the brunt of higher rates.
``A rise in interest rates is just a serious negative for the economy,'' said Greg Muir, executive chairman of Pumpkin Patch Ltd., the second-largest retailer on the NZX 50 Index. Higher rates keep the currency ``artificially high and tough for exporters, and are squashing an already pretty fragile domestic retail economy.''
Earnings growth at New Zealand companies may moderate this year because of slower economic expansion, higher costs and the strength of the currency, Jason Wong, director of economics and strategy at First NZ Capital, said in a report this month. Consumer spending makes up about 60 percent of the $102 billion economy, while exports account for 30 percent.
``It's a double whammy,'' said Trevor Hall, chief executive officer of Tourism Holdings Ltd., New Zealand's biggest campervan operator. ``Our borrowing costs increase and that is likely to continue to hold up the New Zealand dollar, which makes us less attractive as a destination.''
Currency Gains
New Zealand's dollar has gained about 8 percent in the past six months, the best performer against the U.S. dollar among 16 major currencies tracked by Bloomberg. New Zealand's benchmark interest rate is the second-highest after Iceland of any nation with the top credit rating at Moody's Investors Service.
Bollard yesterday said a buoyant housing market and consumer spending suggested annual inflation would have exceeded his 1 percent-to-3 percent target range if he hadn't raised rates for the first time in 15 months. He said economic growth will accelerate from a seven-year low.
Residential construction rose 3.1 percent in the three months ended Dec. 31, the fourth increase in five quarters, Statistics New Zealand said today.
Economic growth will accelerate to 3.1 percent in the year ending March 2008 from 1.8 percent a year earlier, the central bank said. Previously, the bank forecast growth of 2.7 percent in 2008. The economy expanded 1.4 percent in the year ended Sept. 30, 2006.
Still, retailers say consumers may not keep spending. Warehouse Group Ltd., the largest publicly traded retailer, today said second- half profit may stall.
Retail Outlook
``We expect retail conditions to remain challenging for the balance of the year, especially in light of the increase in the official cash rate yesterday,'' Chief Executive Officer Ian Morrice said in a statement.
New Zealand's key rate is 1.25 percentage points higher than in Australia, where the central bank this week kept its rate unchanged. The high yield also encourages investors to invest in so-called carry trades by borrowing cheaply in nations such as Japan, where the benchmark rate is 0.5 percent, and investing in New Zealand.
New Zealand's dollar, known as the kiwi, bought 68.84 U.S. cents at 5:40 p.m. in Wellington. That's higher than the 57.97 cents average weekly rate since it began trading freely in 1985.
``We are trading at unacceptably high levels of the kiwi dollar now, anyway, and everyone is aware of that but doing nothing about it,'' said John Bongard, chief executive officer at Fisher & Paykel Appliance Holdings Ltd.
Cheap Imports
The Auckland-based manufacturer gets about 83 percent of its appliances revenue from overseas markets and competes with imported products from companies such as LG Electronics Inc. and Samsung Electronics Co.
``With the dollar being so high, imports are cheap and people are going to carry on spending,'' Bongard said. ``I don't get the strategy that we are on.''
The currency has been buoyed by high commodity prices and a global appetite for high-yields, but may be ``past its peak,'' Bollard said in an interview yesterday.
``There are concerns there'' about the currency's gains, he said. ``We have to take them into account.''
Unlike other central banks, Bollard alone makes decisions on interest rates. He has responded to criticism by considering other instruments including a levy on mortgages that would slow the housing market.
Yesterday, he proposed talking to trading banks about capital adequacy requirements, which would raise funding costs and may prompt higher home-loan interest rates.
Government Review
``The government needs to give some heavyweight thought to what are a range of measures that the Reserve Bank governor can use,'' Pumpkin Patch's Muir said, ``because the official cash rate clearly, in such an export focused country as ours, tends to have a lot of other unintended consequences.''
Bollard yesterday defended his decision to raise rates, saying he kept borrowing costs unchanged for 15 months before this week to allow the housing market to slow.
Instead, a recovery in immigration, increased government spending and falling fuel prices buoyed consumer confidence and gave the market new momentum, he said.
``Our policy was to push up interest rates in 2005 and then sit on them and let them do their work so we weren't unnecessarily jolting the economy around,'' Bollard told a parliamentary committee yesterday.
``We could have pushed rates up hugely. It would have hit the housing market and hurt traders hugely. We declined to do it.''
To contact the reporter on this story: Tracy Withers in Wellington at [email protected] .
