Dollar, rates jump after Bollard leaves rates unchanged

Bollard left his official cash rate (OCR) unchanged at 2.5%, the first time he has reviewed it and left it unchanged since July last year when the OCR stood at 8.25%.

Wholesale interest rates were up about 10 basis points across the board half an hour after the statement while the currency jumped about half a US cent, effectively tightening monetary conditions.

Nick Tuffley, chief economist at ASB Bank, who had been one of five out of 12 economists picking no change in the OCR, says the high exchange rate "is a very key risk. The issue for them is you can't really look at New Zealand's fundamentals in isolation. While external balances suggest our currency should be lower for a sustained period, that doesn't necessarily mean that will happen."

Robin Clements at UBS New Zealand, which had been picking a 25 basis point cut, says the only headline coming out after the statement which was inconsistent was the one which said "unchanged."