Kiwi Policy Makers Weigh Inflation In Decision (page 2 of 2)

Backed by seven years of growth, confidence in Japan was further buoyed by recent data releases. Businesses provided a generous portion of the improved sentiment evidenced by the tenth consecutive quarter of growing business investment. Capital expenditure in the final three months of last year grew by 8.8 percent. Confidence in growth prospects was also evident in the equities market. The Nikkei 225 advanced to a fresh 5 year high in December as foreign and domestic investors backed the growing economy. A confident Japanese consumer had also provided also leveraged the index higher. A contraction in the jobless rate for December assisted a huge 1.6 percent increase in labor earnings to drive both spending and confidence for health to come.


Canadian Housing Starts (FEB) (13:15 GMT; 08:15 EST)
Consensus: 231.0k
Previous: 248.1K

Outlook: The pace of Canadian housing starts is expected to have slowed last month as extraordinary factors gave way to a more normal environment in which lending rates and housing prices are making home ownership a more expensive investment. Noticeably absent for the housing market in February was the quick change in the weather that brought temperatures down to normal levels. In the beginning of January, temperatures were above freezing in Toronto, Canada's largest city; compared to a historical average 21 degrees Fahrenheit. With these extraordinary factors removed in February, potential builders were left with higher mortgage rates and an already expensive housing market to temper demand. Price growth in residences averaged 0.6 percent in the final quarter of 2005 - backed by years of strong expansion. Even more of a burden for potential homeowners is mortgage rates. Lending rates have risen sharply over the last year as lenders look to conserve their spreads over the benchmark lending rate. After a steady diet of quarter point hikes in the overnight lending rate, the rate stood at 3.5 percent in February - a considerable difference from August's 2.5 percent rate. In response, the most popular five year fixed mortgage rate has risen from 5.7 percent in June to 6.3 percent last month. As housing starts slow in the coming months in response to higher lending rates, housing prices and the market as a whole will lend less of a hand to growth.

Previous: Housing starts surged in December to their fastest annual pace since July as an unexpected jump in single family homes resulted from warmer weather and sustained confidence of an expanding economy with employment and wages to boot. Those in the market for a new home broke ground on 248,100 units on an annual pace. This surprise jump in starts was partially a carry over of a record 27.6 percent jump in building permits, the result of developers taking advantage of favorable building fees that would change in the beginning of the current year. In January, the largest positive component for the rise was the most starts on single-family residents in 16 years. The large increase in construction starts was partially attributable to unseasonably warm weather, but chief reason builders deemed it a good time to start building was sustained confidence in Canada's economy. Growth in Canada for the final quarter of the year outpaced their major Trade partner the United States with a 2.5 percent expansion rate versus their more reserved 1.6 percent pace.

Reserve Bank of New Zealand Rate Decision (20:00 GMT; 15:00 EST)
Consensus: 7.25%
Previous: 7.25%

Outlook: Reserve Bank of New Zealand Governor Alan Bollard is expected to keep interest rates unchanged this week to stabilize the economy. Subsequently though, economists expect rates to remain high as threats of inflation remain imminent throughout the country. Housing prices rose 17 percent in January while unemployment remained low at 3.6 percent with wages rising to record highs of 2.9 percent, encouraging inflation and consumer spending. However, business confidence dropped to a negative 62% as borrowing costs remain the primary challenge to meeting earnings estimates. Additionally, the trade deficit widened to -NZ$935.50M as imports surpassed expectations and exports fell short of estimates once again. This supports the concerns that businesses face as foreign resources are dominating domestic interest and ultimate consumption. In addition, building permits dropped to -10.8 percent from the previous month's advance of 21 percent, which may hurt the construction material and furnishings sectors. The mixed data will encourage the board to maintain current rates in order to keep inflation between the legally required 1 percent to 3 percent target range.