New Zealand's central bank Governor Allan Bollard has left the benchmark interest rate at a record-high 8.25%. It will not be coming down any time soon.
I comment on this because of my recent UK experience. There, as in the US, interest rates are on their way down. Economic growth has become as an important a battle for The Bank of England and The Federal Reserve as the battle against inflation. Not so here. Yet.
My own gut feeling is that the NZ economy will deteriorate faster than Bollard has budgeted for. It is a little like house prices. When they go up, the rise can become irrational. When the market turns, the same irrationality kicks in. They tend to drop more than economic reality would indicate.
Bollard is taking a gamble. New Zealander's will hope he has got it right.
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