By GREG ANSLEY
CANBERRA - Australian economists reacted with surprise yesterday as New Zealand interest rates rose while their Reserve Bank kept cash rates on hold.
They said the opposing decisions underlined Australia's more gradualist approach against the more aggressive and hawkish stance adopted in Wellington.
The Reserve Bank of Australia decided
against a third successive monthly rise from the present 4.75 per cent, which is now a full percentage point below New Zealand's rate.
But most economists expect the Australian bank will later resume modest increases.
"This is most definitely a pause," said BIS Shrapnel senior economist Matthew Hassan. "There are definitely more interest rate rises to come down the track."
The factors believed to have turned the Australian bank away from another increase - turmoil in US equity markets, concerns about global recovery and a farm sector facing falling commodity prices and drought - also affect New Zealand.
Macquarie Bank economist Mark Jolley said New Zealand's move was interesting, given falling dairy prices, sliding export prices and leading indicators that suggested the economy was starting to lose some momentum.
"I would have argued that there were more reasons for the Australian bank to [lift rates] than for the New Zealand bank to go."
He said he thought that Australian Reserve Bank Governor Ian Macfarlane would now put rates on hold.
"It may well simply be that they feel they will have to do less by going sooner and harder," he said.
But Hassan said the New Zealand increase was too aggressive for an economy that was volatile and subject to sharp turnarounds.
"I know inflation is running relatively high in New Zealand, but I'd say the balance of risks would still be on the downside."
In Australia, the decision to place interest rates on hold was greeted with relief by industry, the housing sector and farmers.
New South Wales Farmers Association president Mal Peters said the decision was a recognition of the difficulties facing farmers and of their concern that urban property markets were driving monetary policy.
Housing Industry Association executive director Ruth Morschel welcomed the pause, and warned that new housing starts were already expected to fall by 14 per cent in the next 12 months.
Jolley said the Australian bank would have been concerned at problems facing the Australian economy, but Tuesday's decision was only a pause.
"We've just had some very strong numbers, retail sales and building approvals, and they're consistent with the view than interest rates are too low relative to the strength of the domestic economy."
