(Adds background and further comments throughout)
By Lucy Craymer and Wayne Cole
WELLINGTON, March 23 (Reuters) - A top New Zealand
central banker on Thursday said interest rates were clearly in
contractionary territory and causing a welcome slowdown in
demand in the economy, though it was not yet clear that
inflation expectations were under control.
Reserve Bank of New Zealand (RBNZ) Chief Economist Paul
Conway said the 450-basis-point rise in the official cash rate
(OCR) over the past 18 months was still "percolating" through
the economy and would likely further weigh on consumer spending.
At 7.2%, inflation in New Zealand is near a three-decade
high and well above the central bank's target bank of 1% to 3%.
Also, short term inflation expectations in the first quarter
remained just above 5.5%, according to RBNZ data.
"On balance, our measures of neutral interest rates - the
interest rate that is neither stimulatory nor contractionary -
indicate the OCR is now comfortably above neutral and having the
desired contractionary effect," Conway said.
But he added that if inflation expectations did not fall,
the central bank would need to do more work through interest
rates to bring those expectations down. It would also need to do
more work through "the real side of the economy", he said,
without elaborating on that point.
Conway spoke at the KangaNews-ANZ New Zealand Capital
Markets Forum in Wellington.
The central bank has lifted the OCR from 0.25% in October
2021 to 4.75% and signalled it plans further increases. It has
said it is trying to engineer a shallow recession to slow
demand. Fourth-quarter GDP fell 0.6%.
Conway said there were welcome signs that demand was slowing
but, given recent weather events and the ongoing impact of the
pandemic, forecasting the economy was very challenging right
now.
"We're starting to see signs of people cooling their jets,"
he said. "It's pretty lumpy; it's bouncing around."
(Reporting by Lucy Craymer and Wayne Cole; Editing by
Christopher Cushing and Bradley Perrett)
Messaging: wayne.cole.thomsonreuters.com@reuters.net))
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