Reserve Bank's OCR Rise Misjudged

Wednesday, July 3rd, 2002

The Reserve Bank's decision today to raise the Official Cash Rate by 0.25 per cent will prove to be misjudged, the Employers & Manufacturers Association (Northern) says.

"Acting Governor Rod Carr's decision today is extremely disappointing given the 40 per cent decline in agricultural terms of trade since last year, and the 14 per cent reversal in business confidence reported in the National Bank survey last week," said Alasdair Thompson, EMA's chief executive.

"The Bank's comment that our recent 'growth performance has been outstanding' is galling; despite the best returns for our agricultural exports in 20 years, the best the economy could manage was about three per cent growth.

"The cost to economic growth by targeting the mid point of the 0-3 per cent inflation band, rather than keeping inflation under three per cent, as occurs in Australia, the US, Canada, the UK and elsewhere, is very significant in terms of lower economic growth

"The Bank is running true to form by keeping the New Zealand practice of running interest rates off a higher benchmark than our trading competitors.

"Another surge in the exchange rate is expected as offshore fund managers are reassured and continue to cream off our interest rates and export income. This will be damaging, particularly to our exports to Australia."

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