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Home / New Zealand

Keeping an eye on the interesting issues

7 Mar, 2003 07:50 AM2 mins to read

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Predicting interest rates makes weather forecasting look like a doddle, but if you want to play amateur economist, these are the big issues to watch out for.

The dollar: By recent standards the kiwi dollar is going strong - good news for importers and travellers, bad for farmers and other exporters.
All things being equal, the higher the kiwi flies, the more likely the Reserve Bank is to cut interest rates. So, a strong dollar equals good news for borrowers, bad news for fixed-interest investors, and vice versa.

The economy: The local economy may be cooling but by many measures - house sales, for example, or the labour market - things are still running hot. That makes rate cuts less likely. But if the economy cools down, the Reserve Bank is more likely to try to stoke things up again by trimming interest rates. Bad news for the economy is good news for borrowers, bad for investors.

Global growth: Economically, things are none too lively in many other parts of the world, including the US and Europe. Overseas central banks have been cutting interest rates to try to get their economies up off the floor, which tends to push down rates in New Zealand, too. More bad news from abroad will be good news for borrowers, bad for investors.

War in Iraq: Could move rates up or down. If it's quick and successful - from the US point of view - rates are likely to rise. Ditto if a sudden outbreak of peace and goodwill means there is no war. If things don't go according to plan - a drawn-out war, higher oil prices -rates could fall further as overseas central banks cut rates to try to keep their economies from collapsing. So, no war or a short war will be bad for borrowers, good for investors.

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