Interest Rate Rise: Unhelpful To Driving Up Growth

3 July 2002

Today’s interest rate rise forced on the market by the Reserve Bank is as short-sighted as it is unhelpful....

- Short-sighted - because the latest business opinion surveys have confirmed that the business cycle has peaked and the Bank’s decision will just reinforce the downslide;

- Disappointing - because the Bank should be smart enough to know that the economy is performing a long way short of achieving sustainable growth required for lifting living standards needed to pay teachers, nurses and other professionals top pay rates.

Michael Barnett, chief executive of the Auckland Chamber of Commerce, said that an intelligent response today would have been to hold the cash rate.

“Signals of a declining economy began emerging mid June when the quarterly Chamber survey of members confirmed that the number of businesses expecting the economy to tighten in the next six months had doubled on three months ago.

“Other business surveys published this week have confirmed the negative read-out on the back of falling prices for exports,” said Mr Barnett.

“But I have to ask the Bank whether it could have helped prolong the high optimism business has enjoyed since mid-last year by not forcing up interest rates at this point?”

Ends

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