RB governor warns of higher rates

Wednesday 4th May 2005

Reserve Bank Governor Alan Bollard has reinforced his view that interest rates may head higher.

Speaking in Masterton Bollard "reinforced: his
April 28 statement that "economic data suggests that underlying demand and inflation pressures remain strong and that, in this environment, further policy tightening cannot be ruled out."

"Last week I announced that the Official Cash rate (OCR) would remain at
6.75%," Dr Bollard said. "But I reiterated our concerns about
the persistence of inflation pressures in the economy, which are
severely limiting our inflation headroom."

Dr Bollard said that over the coming weeks the bank would be reviewing its forecasts in more detail, in particular to assess the strength of pipeline interest and exchange rate effects, household demand and ongoing labour market pressures.

"This assessment will be used to confirm whether further policy
tightening is warranted at the June 2005 Monetary Policy Statement.

"Certainly, the current outlook offers no scope for an easing of policy in the foreseeable future."

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