Business Agrees With Reserve Bank's Assessment
The Reserve Bank's decision to leave the Official Cash Rate unchanged is plainly the right decision, the Employers & Manufacturers Association (Northern) says.
"Any interest rate rise at this time would have been extremely damaging," said Alasdair Thompson, the chief executive of EMA.
"Higher interest rates would not halt the inflationary spike coming through from the price increases on imports.
"The Bank is powerless to halt these price rises which are dampening down the economy more than enough on their own without the Bank putting up the price of borrowing money.
"As well as oil, the higher prices are coming through on a long list of other commodities. (For example, in the US over the year to May 2000, prices have risen for hot rolled steel by 20%, stainless steel up 16%, aluminium ingots up 17%, paper pulp up 67%, and copper wire up 27%.)
"The situation is made much worse by the fall in the value of our currency.
"Higher interest rates just now would slow investment further, reduce house prices more, and generally spark off higher unemployment.
"So we are pleased the Bank has withheld its hand even though inflation will exceed its 3% target by the year's end.
"It is critical people heed the call for salary and wage restraint and not try to compensate themselves for imported inflation which has made us all poorer."
Further comments: Alasdair Thompson tel 09 367 0911 or 025 982 024