RB Raises OCR – "Consequences Are Unacceptable"

26 July 2007

Media Release

Reserve Bank Raises OCR – “Consequences Are Unacceptable”

The Reserve Bank action to keep forcing up interest rates is leading to a steady crippling of the productive sector of the economy, says Michael Barnett, chief executive of the Auckland Chamber of Commerce.

It is misleading for the Reserve Bank to claim that New Zealand is recording big increases in commodity prices.

Other than dairying, other sectors are reporting lower returns and prospects now on a knife edge. Returns for sheep farmers are down $500 million, which converts to a loss of around $2 billion to the domestic economy.

Wine, seafood, meat and many manufactured goods exporters are trading at a loss with many staying in the market in the ‘hope’ that the New Zealand dollar will fall before they go under.

I don’t agree with the Bank’s assessment of the New Zealand economy “It is NOT running strong, we are NOT recording big increases in export prices in around 80% of commodity areas, and many exporters are NOT enjoying a strong demand for their products. Instead they are a step further to being crippled by the combination of the higher interest rates the Bank is encouraging and the strengthening NZ dollar driven by US dollar weakness.”

It is incorrect of the Reserve Bank to claim that the higher interest rates give a strong incentive to New Zealanders to save. “What can they save with when mortgages are going up, as well as the price of food and other items?”

The Reserve Bank statement claims that the continued tight labour market along with other factors all point to sustained inflationary pressures. “Doesn’t the Bank understand that the skills shortage has existed for the past 5 years and will continue for at least the next 5 years?”

If lifting interest rates was going to help reduce the skills shortages, the Bank’s actions of four successive OCR increases would have shown some signs of helping – but they haven’t.

The only winners will be offshore investors who will take advantage of our rising interest rates while contributing nothing to the economy, and some importers who will be compelled to reduce prices for goods and so encourage retailers to spend up and contribute to inflation.

ENDS

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