Chamber Concerned at Interest Rate Rise

Chamber Concerned at Impact of Interest Rate Rise on Export Sector

Today's interest rate rise highlights the urgent need for the Government to take more responsibility for reducing inflationary pressures in the economy according to the Wellington Regional Chamber of Commerce.

"The government must assist the Bank in addressing inflationary pressures by curtailing the growth in government expenditure, Chamber CEO Charles Finny said today.

"Expansionary fiscal policy was specified as a concern in the Bank's statement and one of the biggest contributors to recent price rises has been local government rate rises and other Government charges.

"We don't think today's rate increase will have its desired affect of quelling house price and consumer spending pressures partly because of the predominance of fixed interest rate mortgages.

"Instead, rate increases are impacting on other areas of the economy particularly the export sector, directly through the increased cost of borrowing, and indirectly through the impact on the New Zealand dollar.

"The Reserve Bank's own assessment of the state of the tradable sector, particularly with regard to manufacturing and services exports (page 11 of the March Monetary Policy Statement) makes frightening reading. Today's increase will simply exacerbate the problems for the tradable sector.

"We don't think that the business and export sectors should be bearing the overwhelming share of the cost of containing inflation as they currently are. It is time for a rethink. It is ironic to see this situation at the start of Export Year 2007.

"We are pleased the Bank is assessing alternative measures that might support the OCR. Monetary policy should not share the entire burden of fighting inflation.

"We look forward to discussing these issues with Dr Bollard when he addresses a Chamber audience over breakfast on Wednesday next week, Mr. Finny concluded.

ENDS

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