InfoAnda - NZ dollar drops, debt rallies on RBNZ statement

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Yahoo! My Yahoo! Mail Yahoo! Search Search: Sign InNew User? Sign Up News Home - Help Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Singapore Asia Pacific World Search Search: NZ dollar drops, debt rallies on RBNZ statement Reuters - 1 hour 32 minutes ago * NZ dollar and debt yields slide after central bank speaks * RBNZ says recent wholesale rate rises unwarranted WELLINGTON, April 1 - The New Zealand dollar <NZD=> fell more than 2 percent and debt rallied strongly on Wednesday after the country's central bank warned that recent rises in wholesale interest rates were at odds with its wishes. Reserve Bank of NZ governor Alan Bollard sent the currency and yields tumbling after he said the outlook for the recession-hit economy remained weak and the bank would be keeping rates low for some time. "Investors fear that RBNZ may adopt unconventional methods of easing monetary policy, if financial conditions continue to tighten," said Bank of NZ currency strategist Danica Hampton. The NZ dollar <NZD=D2> fell to a low of $0.5558, from $0.5700 before the statement. It was trading at $0.5576/80 at 0100 GMT. Bank bill futures <0#NBB:> fell as much as 32 basis points, and the yield on government bonds on the secondary market settled 8 basis points lower along the curve. Local interest rates had risen sharply over the past week as investors became more convinced the RBNZ was nearing the end of its easing cycle, prompting a surge of demand to pay for fixed rates now. NZ swap rates, which had bore the brunt of recent volatility and gained as much as 60 basis points over the past week, eased. The two year rate <NZDSM3NB2Y=> fell 10 basis points to 3.81/89 percent, while five years <NZDSM3NB5Y=> were 12 basis points lower at 4.945/5.025. Bollard said financial markets have been reading the central bank wrongly, given both the state of the economy and its own statements. "In these circumstances we believe the rise in longer-term interest rates is unwarranted and inconsistent with the monetary policy outlook," he said in a statement. "As indicated in our March statement, we are projecting interest rates to remain at relatively low levels for an extended period." Bollard last month said the RBNZ would likely cut to around 2.5 percent, but the central bank would be reluctant to go much lower because of the need to offer a reasonable return to foreign investors, who through their loans and savings are financing the country's large current account deficit. The rise in the currency and interest rates was effectively undermining the RBNZ's rate cuts and would hurt exporters and borrowers. "Today's RBNZ statement suggests the central bank is worried about the impact tighter financial conditions may have on economic growth going forward," Hampton said. The latest Reuters poll has 9 of 15 economists expecting a rate cut of 25 basis points later this month, and four picking a 50 basis point cut. The consensus view is that the cash rate will settle at 2.5 percent by June. The kiwi lost ground on the cross rate against the neighbouring Aussie <NZDAUD=R> on differing rate after a noted central bank watcher said the Reserve Bank of Australia will keep rates on hold next week. The NZ dollar was also being pressured by a surge in the yen <JPY=> following a report that U.S. government may be willing to let carmakers General Motors and Chrysler LLC go bankrupt. Email Story IM Story Printable View Blog This Recommend this article 0 users recommend Sign in to recommend this article » Most Recommended Stories » Related Articles: Business RPT-India cbank says to sell 905 bln rupees Tbills in Q1Reuters - 50 minutes ago RPT-India set to miss FY09 direct tax target - officialReuters - 51 minutes ago RPT-Geodesic buys back $8.5 mln worth of bondsReuters - 53 minutes ago China 5-year bond yield slightly below forecastReuters - 53 minutes ago Indonesia's Bumi Q4 net profit more than doublesReuters - 54 minutes ago Most Popular – Business Viewed 100,000 secular Britons seek 'de-baptism' Obama offers tough love to US car giants Prince William up for Afghanistan fight: report Hot tea linked with throat cancer World auto shake-up leaves investors reeling View Complete List » Search: Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Copyright © 2009 Yahoo! Southeast Asia Pte Ltd. (Co. Reg. No. 199700735D). All Rights Reserved. Privacy Policy - Terms of Service - Community - Intellectual Property Rights Policy - Help

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