I want to pause, says RBNZ
The Reserve Bank of New Zealand signalled its preference to keep rates unchanged but spelt out its worry that it will be forced to act if inflation expectations rise significantly."Monetary policy would need to respond if inflation expectations and prices were ratcheted up significantly," Governor Alan Bollard said in a speech yesterday. "The result would be higher interest rates and a dampening of the economic recovery."We are hopeful this will not need to be the case, so that monetary policy can play as full a part as possible in supporting economic growth."Bollard used the occasion to convey that the RBNZ's expectation is that the peak in inflation has eased back to around five per cent or just below. In the June Monetary Policy Statement, the RBNZ's expectation was for inflation to peak to 5.3 per cent in the second quarter of 2011.Whatever the peak inflation, the RBNZ has clearly stated it is willing to look through the spike as inflationary effects are likely to be largely out of the system by later next year. Its main worry, however, is that the forthcoming hike in the GST on 1 October could be used as a veil by businesses, labour group and households to increase margins and wages, which in turn would boost inflation expectations and harm the recovery.