RB doesn't expect an Iraq war to greatly affect NZ economy

By NZPA

Thursday 6th March 2003

The Reserve Bank said today it did not expect a possible war on Iraq to greatly affect the economy.

The main effect is likely to be on petrol prices, which feed through into inflation, but even then, oil prices are assessed to have already come close to their peak.

Reserve Bank Governor Alan Bollard said today the bank is expecting oil prices to rise to $US33 a barrel in the first half of this year -- not far from their current rate. Brent oil futures are at $US34.17, West Texas futures are at $US36.84, while actual Dubai oil is at $US30.20.

The RB assess that oil prices will fall to $US24 a barrel in the second half of the year unless there is a prolonged war.

Wars in recent years hadn't seriously affected New Zealand's economy, Dr Bollard said.

"This has been a very forecast war and that has given oil markets a chance to take their view of forward risks into account in terms of setting prices," he said.

Petrol prices have risen 20 percent since the start of December as oil prices have risen. But the surging New Zealand dollar has partially offset the impact of the rising petrol prices.

The RB is allowed to ignore the short-term effects of one-off events such as war-related oil price rises when meeting its 1-3 percent inflation target.

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