Market Updates 15.9.2011

New Zealand holds cash rate on weaker outlook New Zealand’s central bank left interest rates unchanged and signaled no urgency to raise them until the global recovery strengthens, weakening the local currency it called overvalued. “The exchange rate is significantly penalizing some activity in the traded sector, hurting some New Zealand firms and that’s a medium-term effect not a short-term effect,” Governor Alan Bollard told reporters in Wellington today after leaving the official cash rate at 2.5 percent. New Zealand’s currency, the best performer among 16 major counterparts, fell after the statement as investors reduced bets on a rate rise this year. Bollard said there is now greater risk that global economic activity slows “sharply,” and he wants to be sure that won’t occur before contemplating a rate increase. The currency has strengthened because New Zealand’s economy has outperformed others in the developed world, Bollard said today. On a trade-weighted basis, it is assumed to hold around current levels in the coming year, the central bank said.