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Keith Rankin On Interest Rake hike

The Acting Governor of the Reserve Bank, while once again raising the Official Cash Rate as an act of further tightening monetary policy (see www.scoop.co.nz/mason/stories/HL0207/S00014.htm), notes that ongoing increases are less likely than he had expected in May.

The suggestion is that short-term interest rates will stabilise at around 6 percent. The main reason given by Dr Carr for his less hawkish outlook was that the exchange rate had risen faster than the Reserve Bank had anticipated. The second reason given was the shaky international outlook.

This is the first monetary policy statement since the budget. Yet at no stage did Dr Carr suggest that the Minister of Finance's (Michael Cullen) overtly tight fiscal policy had anything to do with the softer tone of Dr Carr's media statement.

Remember that Dr Cullen had claimed that fiscal policy had to be tight to keep a lid on interest rates.

Yesterday's statement suggests that Cullen's harsh fiscal policy makes not a jot of difference to interest rates. My column last week on this topic can be found at: www.scoop.co.nz/mason/stories/HL0206/S00165.htm.

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