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Message to Reserve Bank – Give Growth a Chance!

9 September 2004

Message to Reserve Bank – Give Growth a Chance!

Once again the Reserve Bank has increased interest rates on the basis of a belief that inflation might get too high 9 or 12 months into the future.

“This is like asking business and the community to pre-pay to prevent a problem arising in the future, but failing to fix the underlying problem itself,” said Michael Barnett, CEO of the Auckland Chamber of Commerce.

“Every time the Reserve Bank lift interest rates to keep inflation pressures in check, we shoot ourselves in the foot in terms of locking into the economy an ability to sustain high growth rates and hopes of ever catching up to Australia’s living standards.”

Mr Barnett noted that even the Reserve Bank’s statement today admitted that economic growth is near its peak “but resources will remain stretched for some time.”

“Surely it makes better sense to fix the underlying problems – hot spots like shortages of skilled workers – that are holding business back and putting price and inflation pressures into the economy.”

Instead, business is being forced to suffer the increased costs of interest rates, and only the banks and our competitors in Australia benefit.

Rather than the Reserve Bank Governor warning as he did today that even more interest rate hikes are likely, Mr Barnett said it was high time the Bank and the Government put their heads together to come up with a strategy that uncoupled the link between “inflation pressures” and “growth prospects”.

Unquestionably, if the resource issues could be fixed, we would give ourselves every chance to achieve the sustained high growth needed to lift living standards back to level-pegging with Australia.

“As things are, we are clipping our growth prospects every time we lift interest rates and then justify this on the basis that resource shortages are creating inflation pressures which the Reserve Bank Act says we must constrain in case inflation can’t be kept in check. We need to cut through this circular argument”

“If we are ever to “catch-up” with Australia, we will need to be a lot smarter than we are demonstrating at present,” concluded Mr Barnett.

ENDS

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