Chamber Supports Reserve Bank Decision

25 January 2007

Chamber Supports Reserve Bank Decision not to Lift Interest Rates

The Wellington Regional Chamber of Commerce has welcomed the Reserve Bank’s decision not to increase the Official Cash Rate and said that the government needs to take more responsibility for reducing inflationary pressures in the economy.

“The continuing strength in the housing market is a concern but hikes in the OCR do not appear to be having the desired impact on that sector,” said Charles Finny, Chamber CEO.

“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 relatively high New Zealand interest rates are having on the value of the New Zealand dollar.

“The Chamber’s view is that the New Zealand dollar continues to be overvalued. We hope that there will be an immediate downward movement in the dollar following today’s announcement.

“Longer term we encourage careful scrutiny of New Zealand’s current account balance. This would suggest strongly that the New Zealand dollar is overvalued, and that a significant downward movement in the New Zealand dollar is inevitable,” Charles Finny continued.

“The government also has a role to play in reducing inflationary pressures by curtailing the rapid growth in government expenditure. Expansionary fiscal policy was specified as a concern in the Bank’s statement today. The impact of increased local government rates, government charges and compliance with regulation is also an important part of the mix.

“If the government is serious about giving exports a boost in Export Year 2007, these would be excellent policy contributions,” Charles Finny concluded.

ENDS

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