Fiscal discipline key to keeping interest rates low

Fiscal discipline key to keeping interest rates low

Federated Farmers today called on all political parties to commit to keep fiscal promises modest in this election year in order to keep interest rates low.

This follows the Reserve Bank increasing the OCR from 2.75 percent to 3.0 percent and indicating there is more to come.

“The Reserve Bank is right – the high exchange rate is causing ‘headwinds’ for the tradable sector but the Reserve Bank does not believe its current strength is sustainable,” says Bruce Wills, Federated Farmers’ National President.

“They go on to say that the economy remains strong and that inflationary pressures are building, especially in construction and other non-tradable sectors.

“The economy has been progressing and agriculture and the tradable sector have made a significant positive contribution to that. But rising interest and exchange rates will slow progress up.

“What the bank didn’t say, surprisingly, was that government expenditure needs to remain under control.

“All political parties, who are looking to the medium and long term success of the New Zealand economy and environment, need to commit to keep fiscal policy tight. Particularly in an election year, they need to ensure they don’t go on a spending spree that the country can’t afford.

“Loose fiscal policy simply leads to higher inflation, interest rates and exchange rates.

“What our exporters and the rest of New Zealand needs are politicians who have the discipline to keep government spending in check. All our political parties should commit to this,” Mr Wills concluded.

ends

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