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Low Inflation the Basis for Interest Rate Cut

15 July 2003

Low Inflation the Basis for Interest Rate Cut

The Council of Trade Unions says that today’s consumer price figures should provide a firm basis for a 50 basis points cut in the official cash rate next week.

The fall in annual CPI confirms that growth rather than inflation is the key challenge.

“Although the CPI figure released today is for the last year, the CPI outlook is also benign,” said CTU economist Peter Conway.

“This means a rate cut of 0.5 per cent is a sensible decision for the Reserve Bank next week.”

Peter Conway said that prior to the last review of monetary policy, the CTU was calling for a 0.5 per cent cut and was disappointed that only a 0.25 per cent cut was made.

“A stronger cut would have sent a signal to speculators on the NZ dollar.”

Peter Conway said that although the CTU is not predicting a “hard landing” for the economy, it is concerned that if interest rates do not ease to boost investment, reduce mortgage interest payments to assist consumption, and reduce the pressure on the NZ dollar, then jobs will be lost.


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