Interest Rate Rise Expected Though Unwarranted

Today's interest rate rise of 0.25 per cent was not warranted though expected, the Employers and Manufacturers Association (Northern) says.

"We agree with the CTU over the Reserve Bank's move today, that it was unnecessary," said Alasdair Thompson, EMA's chief executive.

"The Reserve Bank seems to be looking at a different set of figures than the rest of us when it says the economy is "already-stretched". We can't find much evidence to back that point of view.

"Prices for our dairy products have plummeted with $1 billion less payout expected and with forward hedges maintaining returns in the meantime.

"While unemployment is relatively low, wage demands have overall not exceeded three per cent. The consensus forecasts for wage increases next year have fallen back to 2.5 per cent or less.

"Hence most businesses don't understand the Bank's view that the economy is running at full capacity.

"Most significant is the steady rise in the exchange rate occurring as commodity prices fall. All exporters will soon see lower returns while competition on the domestic market intensifies.

"A falling exchange rate used to see inflation 'imported' which was attacked vigorously by maintaining high interest rates.

"Consequently New Zealand did well to keep inflation within the target range but squeezing the last bit of it out of the system came at a high price.

"Our view is that New Zealand's interest rate regime is now stuck on a plateau higher than our trading partners where its been for several years.

"Under the ongoing activism of our Reserve Bank we won't get off this
plateau for years to come with the consequence economic growth will be compromised.

"We're not amongst those who hold the view that the Reserve Bank can or should be immune from scrutiny, or criticism. To the contrary, the Bank must remain sensitive to alternative interpretations of the economic data as part of its obligations in a democratic society."

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