RNZ and ECB raise rates

Central banks were in focus yesterday.

The Reserve Bank of New Zealand kicked off the day on a hawkish note. Radio New Zealand reports:

[Reserve Bank Governor] Alan Bollard raised the Official Cash Rate by a quarter of a percentage point to 7.5% on Thursday, saying a pickup in the economy had raised the inflation threat.

Dr Bollard says the bank is also examining other ways to get at house price inflation, including tighter tax rules relating to property investment.

He says he is looking at changes to the amount of capital banks must hold in reserve.

Dr Bollard says if the Official Cash Rate had not been put up on Thursday banks may have cut interest rates.

The European Central Bank sounded barely less hawkish as it raised rates later. Bloomberg reports:

European Central Bank President Jean-Claude Trichet said interest rates are still fueling economic growth, signaling the bank may raise borrowing costs further after today's increase.

"Given the favorable economic environment, our monetary policy continues to be on the accommodative side, with the key ECB interest rates moderate," Trichet said at a briefing in Frankfurt today after the ECB increased the key refinancing rate by a quarter point to 3.75 percent. The bank also raised its growth and inflation forecasts for 2008...

The ECB increased its economic growth forecasts for 2007 and 2008 to about 2.5 percent and 2.4 percent, from 2.2 percent and 2.3 percent. In 2006, the economy grew 2.6 percent.

This was despite mixed data on the German economy for January, industrial production posting a surprisingly strong 1.9 percent growth but manufacturing orders falling by 1 percent.

The Bank of England, however, chose to hold rates for the time being. Bloomberg reports:

The nine-member Monetary Policy Committee, chaired by Governor Mervyn King, held the Bank Rate at 5.25 percent today, as predicted by all except nine of the 67 economists surveyed by Bloomberg News. The remainder expected a quarter-point increase...

Higher borrowing costs have yet to cool the U.K.'s housing market, which has helped power growth by encouraging consumers to borrow and spend more. House prices rose for a second month in February, gaining 1.8 percent from January to an average of 192,233 pounds, HBOS Plc, Britain's biggest mortgage lender, said today.

A slowing in British shop price inflation in February though would have helped ease inflation worries.

In Denmark, where industrial production in January was down but so was unemployment, the Danmarks Nationalbank took its cue from the ECB. AP/Forbes reports:

Denmark's central bank raised its key lending rate Thursday by a quarter-point to 4 percent, mirroring a move by the European Central Bank.

The increase would take effect on Friday, Danmarks Nationalbank said.