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Interest rate hike questioned

Interest rate hike questioned

The surprise decision to lift interest rates today raises questions over the Reserve Bank's reading of our economic outlook, the Employers & Manufacturers Association (Northern) says.

"With the official US interest rate on hold at one per cent, today's decision must increase the upward pressure on our exchange rate," said Alasdair Thompson, EMA's chief executive.

"Life for our exporters is about to get more difficult than it already was.

"Our analysis of inflation at present is that it is resulting from high demand chasing a limited supply of goods and services. The goods in question are mainly electricity, housing and the lack of skills.

"Electricity is in short supply after years of insufficient investment in more generation capacity. But without the price of power rising, new generation capacity would not occur.

"The rising cost of new housing is in response to strong immigration. This is changing rapidly and housing stocks are likely to exceed supply before the year's end.

"It's true the lack of skills is driving up salaries and wages for some types of skilled people - our national salary survey of 94,000 job positions last year showed average pay increased 3.86%. But the concern is ongoing, many initiatives are moving to fill the gaps, and the rises have been reassuringly steady.

"The Reserve Bank appears to be overstating New Zealand's growth prospects this year. With the pressure rising on exporters the present decline in our rate of economic growth will accelerate.

"Business can take some heart from the Bank's stated desire not to raise the OCR further. If it did, we would probably be in for a hard landing."

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