1 Apr 2009

Interest rates, dollar fall on Reserve Bank disquiet

10:35 pm on 1 April 2009

Money market interest rates, along with the dollar, fell sharply on Wednesday after the Reserve Bank said recent rises were unwarranted.

The Reserve Bank took the unusual step of making an unscheduled announcement in response to rises in mortgage rates and the dollar in the past fortnight.

The bank says a recent rise in interest rates is unwarranted and could put unnecessary pressure on the cost of borrowing if the trend the continues.

In the statement issued on Wednesday morning, it said it believed the rise was inconsistent with its monetary policy outlook for a long period of low interest rates.

The statement said that if the situation persisted it could put unnecessary pressure on the cost of borrowings for firms and households.

Economists have blamed the recent increase in long-term interest rates on competition among banks and corporate borrowers for funds.

The dollar dropped more than 2% to a low of $0.5558, from about $0.5700, after the statement.

Two-year and five-year interest rates fell by between 0.2 percentage points and 0.3 percentage points.