90-day bank bills top 5pc as kiwi declines

By Yoke Har Lee

Interest rates on 90-day bank bills rose yesterday to their highest levels since early October, breaking through 5 per cent in response to better-than-expected third-quarter growth.

Ninety-day bank bills, which banks use to set home mortgage rates, were offered at 5.14 per cent late yesterday, up from 4.85 per cent last Thursday.

Bond rates also rose, while the Kiwi dollar fell in sympathy and was offered at 51.95 US cents in late trading, down from 52.10 USc at last Thursday's close.

The Kiwi fell to its lowest level against the yen since August 1995, largely because of the yen's strength against the US dollar.

The Monetary Conditions Index was at minus 337 in late trading against minus 351 last Thursday.

Said one dealer: "The market was trying to raise cash, liquidating long positions, continuing a trend we saw last week when the GDP [gross domestic product] figure came in stronger than expected."

"Key resistance was broken at the 5 per cent level. There is a potential we could see more weakness [higher interest rates] ahead."

But Stuart Marshall, an economist at the investment house Bancorp Holdings, said he did not expect higher interest rates.

"There is no reason for short-term rates to pick up. We don't agree with the Reserve Bank's view on inflation and think there is no reason to tighten monetary policy," Mr Marshall said.

The thin post-Christmas market also meant the spike in short-term rates was more pronounced than it would have been otherwise.

The ANZ Bank's Mark Elliot said that despite its recent weakness, the dollar was likely to continue to trade in a range.

"There should be some upside, if any. But the Kiwi is likely to trade in the 51.80-52.50 range."

The currency's weakness was also attributed to a weaker Australian dollar, which has been on a downward trend because of weak commodity prices.

The Kiwi was trading late yesterday around 59.84 yen, against 60.25 yen on Thursday.

"The yen's strength is not expected to hold," a dealer said. "I think the US dollar should be able to hold at the 115 level against the yen ahead of the
euro."

Uncertainty over trading in the euro would lead to investors keeping US dollars for now.