Interest Rates Could be Pushed Higher by Debt Crisis

15 September 2011 - Which Way to Pay

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Interest Rates Could be Pushed Higher by Debt Crisis

The Reserve Bank Governor, Alan Bollard, has said that New Zealandís banks may be forced to hike interest rates if the global financial markets continue to suffer and keeps increasing funding costs, even without a monetary tightening policy.

The official cash rate was held at 2.5% by Bollard today. He said that the gloomy outlook for the global economy has hit lending confidence and money markets across the world have tightened their lending, which will inevitable filter down to local banks.

New Zealandís banks are doing relatively well at the moment, but the biggest challenges will be faced when fees to tap offshore money increase significantly if the current turmoil in the markets does not calm down soon. If these fees do get larger, the banks will be forced to raise deposit and lending rates without any movement in the OCR.

Concerns over sovereign debt in the eurozone along with weak economic growth internationally have led to poor investor confidence. The Reserve Bank said that for local lenders Ďthe indicative cost of long-term funding has increased materiallyí, but lending costs are yet to be affected.



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