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Interest Rate Hike Premature, Stomps On Growth

Today's interest rate increase is too soon with economic growth running at less than two per cent per annum and inflation lower than many of our trading competitor countries, the Employers and Manufacturers Association (Northern) says.

"Dr Brash has reverted to the form of 1997/98 when the Reserve Bank stomped all over growth," said Alasdair Thompson, EMA's chief executive.

"In this cycle Dr Brash was again last to bring interest rates down, and first to put them up.

"He's too fast on the draw, with the New Zealand economy taking the shot.

"EMA members will take issue with several of Dr Brash's justifications for today's announcement. First, we do not accept the economy is running close to capacity. The capacity utilization average of our manufacturers this year has been only 71 per cent, lower than it was for most of last year.

"Second, the strength of retail spending is temporary, and third, the US Federal Reserve has not yet spotted the recovery in the US that our Bank appears to see. The Federal Reserve yesterday noted economic activity there has not yet fed through to consumer demand.

"Fourth, monetary conditions have tightened of late with a rising kiwi dollar impacting on exporters along with falling commodity prices.

"The little inflation there is in New Zealand is not being fed by supply or demand factors.

"On the other hand, Government is allowing electricity costs to spiral out of control, sucking up demand through new taxes, and adding to compliance costs from employment law, the RMA and the HSNO Act.

"With Dr Brash stomping on growth with this premature interest rate rise, and Government socking in new taxes and costs, the Prime Minister's talk of economic growth is looking like mere rhetoric to keep business quiet."

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