Slow Action On Interest Rates Holding NZ Back

The 0.25 per cent cut in the official interest rate today underlines again the excessive caution of our Reserve Bank, the Employers & Manufacturers Association (Northern) says.

"We are disappointed though unsurprised at this morning's announcement on interest rates," said Alasdair Thompson, EMA's chief executive.

"The no-growth outlook for our exports outweighs any short term pressures from wage inflation.

"Business accepts there are some risks to inflation in the economy from skills shortages and low unemployment, but they are no different from similar trends in Australia and the US where interest rates are much lower and going down faster.

"The US rate is now 43 per cent lower than ours and the Australian rate is 15 per cent lower.

"We have to repeat our earlier warning that the present growth cycle has peaked and the risk for inflation has diminished accordingly.

"Since we have managed only three months of tiny trade surpluses over this cycle, the flow on effects of the commodity boom will be limited and mainly in the rural economy.

"Hence the Reserve Bank should shelve its caution for the time being and look at the benefits for inflation from making a bigger cut to interest rates sooner rather than later.

"This would promote anti-inflationary investment to increase production capacity and productivity."

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