Westpac sees confidence

Press, 5 September 1989, Page 43

Westpac sees confidence

PA Wellington Confidence in the national economy has been supporting the New Zealand dollar in spite of the last month’s falls in interest rates, Westpac Bank economists say. The Government’s monetary policy had not changed but interest rates had been allowed to fall because their decline had not sparked a rapid depreciation of the New Zealand dollar, the bank economists said in their weekly commentary yesterday. The falling interest rates had also stimulated the sharemarket, the economists said. The Government’s concentration on the retirement of domestic debt, continued commitment to low inflation and the deficit target and the net zero bond programme had all contributed to the downward pressure on interest rates, the economists said.

“The smoothness of the transition from David Lange to Geoffrey Palmer and the reinclusion of Roger Douglas into Cabinet have assisted in convincing both domestic and offshore investors that perhaps New Zealand is a reasonably politically and economically stable place after all,” the economists said. They warned, however, that while long-term rates, such as yields on November, 1993 bonds, appeared to be falling, short-term rates such as 90-day bank bills might have settled into a new trading band only marginally below rates before the July 27 Budget. “Short term rates are being supported by the increasing concerns about inflationary pressure, especially with the September-quarter consumer price index increase expected to be over 3 per cent,” the economists said. The main worry was the effect this would have on wage talks.