Canterbury Manufacturers’ Association
Media Release
25 January 2007

Canterbury Manufacturers’ Association Chief Executive John Walley says that by continuing to hold interest rates and merely warning New Zealanders against further borrowing and spending, the Reserve Bank is creating chronic problems for the economy in the long term.

“The Reserve Bank’s rule of thumb appears to be a case of ‘if in doubt, do nothing’”, says Mr. Walley. “The Bank will need to consider lowering the OCR at some point in 2007 in order to reduce the upward pressure on the currency”.

“The average rate of the New Zealand dollar to its US counterpart in 2006 was US$.65. It is currently trading just over US$.69 due in large part to our high interest rate. Using a pretty approximate analysis, an adverse change in the NZ/US cross-rates of only 1 cent reduces the total return from New Zealand’s exports by over NZ$400 million. This puts into context the $33 million being allocated to Export Year ’07. That amount is wiped away by a one-tenth of a 1 cent rise in the exchange rate. Following this morning’s announcement, the change was about 3.5 times that – you do the numbers.”

“The NZ$ is the highest traded currency in the world per dollar of GDP. The control of inflation via the OCR is nothing like as effective as the impact the OCR has on the exchange rate. There has to be a better way. Whilst we continue to rely on the OCR, whilst Government continues to spend and spend, whilst New Zealand rely great at selling dollars, whilst the tradable sector is used as the sacrificial buffer for the rest of the economy – in these circumstances sustainable long term growth is an illusion.”

ENDS

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