N.Z. Reserve Bank Plans Focus on Inflation Amid Recovery

June 30 (Bloomberg) -- New Zealand’s central bank said it will focus on inflation risks over the next year as the global economy recovers from recession.

“An enormous challenge looms in inflationary risks once confidence returns to normal in global markets when there is so much liquidity around,” the bank said in its annual “statement of intent” released in Wellington today. “We will be focused on these risks as we consider the likely nature of a recovery.”

Governor Alan Bollard has cut the benchmark interest rate to a record low to kick-start an economy in its worse recession in more than three decades. He said on June 11 that inflation, which he is required to keep between 1 percent and 3 percent, would ease sharply this year, giving him scope to keep borrowing costs low until late 2010.

Consumer prices will rise just 1.2 percent in the year ending March 31, 2010, and 2.3 percent in the following year, the central bank forecast.

The statement is published annually, outlining the central bank’s plans across all its roles including financial-market regulation and prudential supervision.

While New Zealand is in its sixth quarter of recession, it has “got off remarkably lightly so far compared with larger northern hemisphere economies,” the central bank said.

“Financial aftershocks still rock our markets, with New Zealand dollar investments swinging in and out of favor as market appetite for risk fluctuates,” it said. “How long recovery will take is uncertain, though it is likely that it will be some significant time before economic activity returns to robust and healthy levels.”