Will The RBNZ Halt English’s Rebalancing?

Will The RBNZ Halt English’s Rebalancing?

In Parliament last week Finance Minister Bill English welcomed some rebalancing that has occurred in the economy since the economic crisis pointing to growth in the tradeable economy. That rebalancing will be dealt a blow if the Reserve Bank continues to hike the Official Cash Rate (OCR) on Thursday say the New Zealand Manufacturers and Exporters Association (NZMEA).

English noted that “some of the imbalances handicapping New Zealand's economy for the past five or six years are easing” as the tradeable sector is now growing faster than the non-tradeble sector.

“While the turnaround in our growth profile has been largely fuelled by a collapse in the domestic sector rather than any great take-off in the tradeable sector, we do not want to jeopardise any rebalancing that has occurred,” says John Walley, NZMEA Chief Executive.

“The contrast between the RBNZ hiking interest rates here and central banks in the United Kingdom and the United States indicating an extended holding pattern has already seen the New Zealand dollar reach six month highs. Closer to home the RBA’s holding pattern is an indication that they went early – we did the same and should admit it.”

“There has been talk that five percent is a neutral level for the OCR, but a neutral level is really comparative. With our OCR sitting closer to the Australian rate than the rates of the Northern economies it is feeling pretty tight right now.”

“Continuing to hike the OCR despite the weight of evidence against the move will do significant harm to the tradeable economy. If the Reserve Bank is seriously concerned about controlling domestic inflation it needs to look to other macro-prudential tools to do it. It should be apparent by now that killing returns to the tradeable sector does nothing to solve the problem of domestic inflation.”

ENDS

© Scoop Media