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Interest rates should be held for now

Media statement Tuesday, December 2nd, 2003

Interest rates should be held for now

It's too early for the Reserve Bank to start ratcheting interest rates up, the Employers & Manufacturers Association (Northern) says.

The continued ascent of the New Zealand dollar against the USD will restrict inflation and should ensure the Reserve Bank keeps the OCR at 5 per cent, said Alasdair Thompson, EMA's chief executive.

"A lot of debate over recent years about interest rates has been driven by the perception that the Reserve Bank tended to be biased towards tighter monetary conditions," Mr Thompson said.

"The blame for that can be fairly laid on the old inflation target which was too tight. With a more relaxed framework in place now, the RBNZ can afford to be less trigger happy.

"With inflation presently at 1.5%, and likely to stay there in 2004 as the NZD puts downward pressure on prices, there is no need for the Bank to raise rates now.

"The housing boom has reached its peak as net migration is slowing.

Increased supply will also keep price inflation in the housing sector in check.

"Exporters' incomes are now under severe strain.

"The bottom line is that the economy is slowing and Bank Governor Alan Bollard can afford to wait and see.

"It would be very unfortunate if he tightened and reinforced the domestic slowdown too rapidly at a time when the export sector is struggling with the high dollar."


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