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Reserve Bank Outlook Disappointing

17 May 2000

RESERVE BANK OUTLOOK DISAPPOINTING

"The decision today by the Reserve Bank to raise the OCR by a further 0.5% per cent to 6.5% per cent is not unexpected", said David Moloney, President of the New Zealand Manufacturers Federation.

"What is disappointing, and a matter of growing concern, is the outlook it reflects which still sees inflationary pressures as building and, as a consequence, identifies the need for a further tightening of monetary policy".

"The Federation is very much of the view that the Reserve Bank should now adopt a wait and see approach and allow time for the impact of its measures to trickle through the economy before it moves to raise the OCR again.

There are already signs that the domestic market is slowing. Yet the Bank is still overlooking how the continuing flood of imports - for example the March quarter saw a 35% increase in the growth of imports from China - is depressing price increases on the domestic market.

"It is also unclear why the Bank has discounted the fall in business confidence over the medium to longer term. The signs are already there. Overall, manufacturers have indicated their employment intentions for the June quarter are negative. At the same time activity intentions are weaker than previously.

"The big uncertainty is how the raft of new policies being introduced by Government will impact on the economy. Few are seen by industry as encouraging the type of economic growth necessary if New Zealand is to remain globally competitive. It is hard to see at the moment how anything announced in the Budget will turn this negative outlook around."

David Moloney 04 388 8355 (bus) or

Peter Crawford 04 473-3000 (bus) or

Julie McBurney Corporate Communications Manager


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