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“Cut interest rates to help export-led growth….”

“Cut interest rates to help export-led growth….”

…That’s the call from the Auckland Chamber of Commerce ahead of the Reserve Bank’s interest rate announcement due this Thursday.

“The rapidly rising value of the New Zealand dollar has the potential to hit exporters hard, especially if sustained for any length of time as appears likely,” said Michael Barnett, chief executive of the Auckland Chamber.

He suggests that despite the strength in the domestic economy, a cut in interest rates is justified to offset the impact of New Zealand’s fast rising dollar compared to currencies of key trading partners.

Mr Barnett conceded that Auckland’s buoyant property market and the generally strong domestic economy could be a factor for holding interest rates at current levels.

Economists have for some time been predicting a tightening in the domestic economy and an expectation that Reserve Bank Governor Alan Bollard might not ease interest rates until later this year.

“On balance, we should move now and not wait,” he said. “The key driver of economic policy should be finding ways to increase productivity and shift the focus from the current focus on consumption-led growth and that can be achieved only by encouraging exporters in every way possible,” said Mr Barnett.

Import volumes have been out-performing exports for some time, and it is crucial this trend is reversed if the country is to achieve the earnings needed to pay for the higher living standards that the Government claims to be seeking.

Mr Barnett acknowledged that exporters had enjoyed the benefits of substantially increased earnings while the dollar’s value was low compared to trading partners. “But there has been little increase in export volumes during that time.” He warned that as a nation “we could be about to pay the price for our collective failure to build a higher performing economy over recent years.”

He took issue with Prime Minister Helen Clark’s reported comment that while the dollar was in a “high value” cycle, exporters should be prepared to live with reduced earnings for the same volume of exports.

There are two issues that Government should be responding to with some urgency:

What the country needs to do to increase the volume of exports and the efficiency of production to offset the inevitable pressures arising from a higher valued currency; and, What the Government should have done while the dollar was low to create a mindset among exporters on how to boost export volumes to overcome impacts of a high dollar.

“Despite Government policies giving priority to achieving higher living standards for all through growth and innovation, there is no evidence that the policies have increased productivity or lifted living standards,” concluded Mr Barnett.

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