New Zealand may be way down in the south, but its interest rates are way up in the north, especially after the latest rate hike today. Bloomberg reports:
New Zealand's central bank raised the benchmark interest rate to a record 7.75 percent, the second increase in seven weeks, because surging housing demand and consumer spending may fan inflation.
"The resurgence in economic activity that began in late 2006 has continued over recent months, with domestic demand continuing to expand strongly," Reserve Bank Governor Alan Bollard said in a statement released in Wellington today. "The lift in domestic demand is placing further pressure on already-stretched productive resources."
Bollard faces the dilemma of trying to cool domestic demand while limiting the damage to exporters, whose earnings have been eroded as higher interest rates caused the New Zealand dollar to surge to a 22-year high last week. He refrained today from commenting on the potential for further increases prompting some economists to speculate he's done raising rates for now.
New Zealand's trade gap did get a respite in March though.
New Zealand's annual trade deficit was little changed in March as higher prices for butter and milk powder buoyed exports more than expected, pacing demand for imported cars and machinery.
The merchandise trade shortfall was NZ$5.78 billion ($4.3 billion) in the year ended March 31 from NZ$5.77 billion in the 12 months ended February, Statistics New Zealand said today in Wellington. The median forecast of nine economists surveyed by Bloomberg News was for a NZ$5.85 billion gap.
On the opposite end of the world, Norway had left interest rates unchanged at 4.0 percent yesterday.
Meanwhile, mixed economic data in the US yesterday should add to the likelihood that the Federal Reserve stays on hold for a while more. Reuters reports that durable goods orders were up:
The Commerce Department said orders for long-lasting goods like new cars and refrigerators gained 3.4 percent to a seasonally adjusted $214.9 billion last month after a 2.4 percent February rise...
A key component of the monthly report that serves as a proxy for business investment, non-defense capital goods excluding aircraft, posted a 4.7 percent increase in orders last month.
But housing remains weak:
But a second department report showed sales of new homes rose 2.6 percent in March to an annual rate of 858,000 that was below forecasts for an 888,000-unit rate.
The inventory of completed but unsold homes gained slightly to 545,000 from 544,000 in February, a hefty overhang that analysts said will delay a recovery in the housing sector...
Other housing data on Wednesday was slightly more upbeat. A report from the Mortgage Bankers Association showed U.S. mortgage applications rose last week after five straight weekly declines, as lower loan rates fostered home purchases and refinancings.
And this probably summarises the overall state of the US economy:
...[T]he Federal Reserve's periodic Beige Book survey of national economic conditions during the period from the end of February to mid-April...said there was only "modest or moderate expansion in economic activity" and described manufacturing activity as slow.
Economic growth continues to be strong elsewhere, though.
South Korea grew four percent year-on-year in the first quarter and 0.9 percent from the fourth quarter of 2006 while the UK grew 2.8 percent in the first quarter or 0.7 percent on a quarterly basis.
And in Germany, the Ifo business confidence index rose to 108.6 in April, the second-highest level on record, from 107.7 in March, while the government raised its economic growth forecast for 2007 to 2.3 percent from 1.7 percent.
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