Reserve Bank must keep its eye on the mid term

Media release
May 15th, 2000

Reserve Bank must keep its eye on the mid term

An increase in interest rates on Wednesday will show the Reserve Bank does not have its eye on economic conditions 12 to 18 months out as it has claimed, says the Employers & Manufacturers Association (Northern).

"The evidence that the Reserve Bank should withhold further interest rate rises at this time is coming in with alarming speed," said Alasdair Thompson, the association's chief executive.

"Dr Brash could be about to guarantee our economy takes an early cold shower.

"The latest tally against interest rate rises is:

* The cross rate with Australia, by far our most important market, continues to worsen. Exporters are telling us orders from Australia are plummeting.

* Interest rate rises from the last round of hikes are biting. Ask any real estate agent or retailer. Retail sales over the past two months have dipped significantly.

* Business confidence is slackening right off. The National Bank survey points south; the ANZ survey of jobs supports this, and early signs are our own Survey of Business Conditions covering half the country's manufacturers and to be released late this week, shows the trend deepening.

* The exchange rate overall is showing the hallmarks of capital flight, which means investment across the board is on hold.

* The level of investment going into new production capacity is hopelessly inadequate anyway. Sure, investment intentions have been cautiously positive of late, but actual spending has never occurred. For the past six quarters on end to March, investment in manufacturing plant nation wide has been negative.

* The Australian corporate tax rate is about to go well below ours, to 34 per cent this July and to 30 per cent from July next year. This will exacerbate the problem with Australia taking any new investment from here over there.

* Costs from re-nationalising ACC, raising the top tax rates, and a Government clearly prepared to play fast and loose with tax payers funds to shore up its constituency, are issues creating further uncertainties.

* Uncertainties from the Employment Relations Bill are also holding potential investors back.

* Imports keep flooding in, with our Balance of Payments situation worsening; a correction will happen at some stage.

"All these issues, though not exactly containing inflation, mean a lack of business growth will likely take care of any inflationary impacts.

"We firmly recommend the Reserve Bank stay its hand on interest rates for this round; it can do so and remain conservatively within its inflation target band."

Further comment: Alasdair Thompson 09 367 0911 (bus) 09 303 3951 (hme) 025 982 024 (mob)

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