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With the controversial Emissions Trading Scheme delayed, Prime Minister Helen Clark is now strongly hinting she would like to see New Zealand's high interest rates fall.
But economists say a reduction is wishful thinking, and the opposition has accused Clark of pressuring the Reserve Bank for political benefit.
Reserve Bank Governor Alan Bollard predicted the emissions trading legislation would hike already-high interest rates by another 0.25%.
Now the scheme has been deferred for two years, Clark sending a strong message to Bollard that her government want to see interest rates coming down.
"I think (the trading scheme postponement) is another signal that the government is serious about not provoking monetary policy into responses which spike things upwards, and that's simply a matter he's going to have to consider," says Clark.
The Emissions Trading Scheme could have seen a petrol price hike as high as eight cents for every litre purchased. It was believed that would have pushed up inflation, leaving little room for the Reserve Bank to cut its rates.
However, delaying the scheme's implementation should ease that pressure.
BNZ Chief Economist Tony Alexander doubts that the latest round of government action will radically alter the Reserve Bank's decision making.
"We think they're gonna cut (interest rates) in December at the latest, and this announcement from the government does slightly increase the chance that they will cut before December, but only by a tiny amount realistically."
If so, the decrease would chop only 0.25% off an Official Cash Rate that currently stands at 8.25%
National finance spokesman Bill English says that would be convenient in election year.
"Helen Clark's trying to talk the Reserve Bank into cutting interest rates, but the Bank's been warning them for years that their big spending and wasteful spending has pushed rates up higher for longer."
For his part, Bollard is not yet revealing how his agency will respond, telling ONE News that New Zealanders will have to wait until June 5, when interest rates are next set, to see the Reserve Bank's view on an pre-election decrease.
The Reserve Bank did make moves on Wednesday to announce special measures to ensure the banking system has enough liquidity in the event of a recession.
The measures included expanding the range of acceptable securities for borrowing from the bank, bringing the Reserve Bank into line with other central banks worldwide.
But Bank Deputy Governor Grant Spencer stressed the liquidity measures had no implications for the bank's stance on interest rates.
