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Reserve Bank Actions Puzzle Manufacturers

19 January 2000

Reserve Bank Actions Puzzle Manufacturers

“Manufacturers are puzzled by the Reserve Bank’s decision to increase the OCR by 0.25% given the widespread uncertainty in the sector over the robustness of economic growth during the next twelve or so months”, said Simon Carlaw, Chief Executive of the New Zealand Manufacturers Federation. Mr Carlaw was commenting on the Reserve Bank’s announcement today to increase the OCR.

“While manufacturers have recorded good growth in the December quarter, there are indications that they doubt this growth is sustainable. Concerns certainly include proposed changes to ACC and the ECA and the impact of other proposals the Government is currently considering which would affect the business environment.

“The most significant pointer is the poor rate of investment by manufacturers. They are simply not prepared to take the risk without greater certainty. Without this investment the rate of growth is unlikely to continue at present levels.

“Not only does the Reserve Bank appear to have down-played this uncertainty in its prognostications, it also seems to have down-played the continued strong growth in imports and the blow-out in the balance of payments. Any rise in the exchange rate as a result of the rise in interest rates would certainly dent the current fragile recovery in the productive sector.

“For these reasons the Reserve Bank appears to have been premature in its announcement today, particularly as it has an horizon of two years. It may have been wiser to have waited for the CPI figures which came out only hours later and the business opinion data due out next week.”

ENDS



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