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Reserve Bank has a choice to make this Thursday

7 December 2005

The Reserve Bank has a choice to make this Thursday

– “To stay part of the problem or make a contribution towards preventing New Zealand’s economic decline.”

“An increase in interest rates by the Reserve Bank on Thursday will contribute to our economic decline without doing anything to curb inflation – it will only make the problem worse,” Auckland Chamber of Commerce CEO Michael Barnett said today.

The reality is that if the Reserve Bank raises interest rates it will fuel international interest to take full advantage of New Zealand’s high interest rates compared to elsewhere. “And this in turn will fuel inflation, increase the exchange rate and wreck havoc on exporters and other businesses.”

“I am almost at the point of saying that a Reserve Bank call that lifts interest rates would be against New Zealand’s best interests - that’s the message many of our members are suggesting we are getting close to. It’s that bad!”

As the Chamber has said previously, with Government generating about 40% of the economy and contributing about half of the current 3.4% inflation rate - the highest level since 2000 and breaking the Reserve Bank’s 3% benchmark – three things it could do immediately to restrain inflation expectations are:

- Put a freeze on new Government charges and levies and block increases in existing ones;

- Impose legislation to prevent local bodies raising rates beyond the Reserve Bank’s 3% inflation guideline; and,

- Take steps to eliminate Government profiteering from the increased tax revenue generated from rising petrol prices.

The business community would be encouraged if the Reserve Bank could make the call for these kinds of measures, and Government followed through with some action. “It would send a strong message to the community that the Government really is serious about reigning in unnecessary costs and keen to help business by ensuring future legislation doesn’t impose new costs on business that add to inflation,” concluded Mr Barnett.


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