Interest rate cuts are not a long term solution

New Zealand Manufacturers and Exporters Association
Corner Cambridge Terrace & Manchester Street
PO Box 13-152, Christchurch, New Zealand

Website: www.mea.org.nz
Email: mea@mea.org.nz

MEA Media Release, Tuesday 26 February 2008.

Interest rate cuts are not a long term solution for exporters.

The New Zealand Manufacturers and Exporters Association, (NZMEA), says that exporters should not expect an immediate cut in interest rates, despite the pressure caused by the strong NZ dollar. The Association is calling for the implementation of other means to restrain domestic inflation, and that a variable rate compulsory superannuation saving scheme could be more effective at curbing exchange rates than using interest rates.

“Unfortunately, headlines demanding solutions from the Reserve Bank is not the answer because the RBNZ has the objective to restrain inflation and exporters are the collateral damage of that objective. We are not on the same page”, says Chief Executive John Walley. “Exporters want lower input costs, a stable exchange rate and lower cost of capital, while the RBNZ‘s will not cut interest rates if it risks losing control of inflation beyond the 3% level”.

“The underlying policy drives the spread between New Zealand’s inflation and interest rates, which are the highest in the developed world; the underlying policy needs attention rather than talking about headline exchange rates. Pointing in the direction of the RBNZ will do no good unless underlying Government policy changes”.

“The discussion around supplementary measures is already in the Government machine; even levies on petrol are being proposed. However, rather than drive more revenue to Government to fund yet bigger tax cuts, which will of course increase inflationary pressure, the economy would be better served through the introduction of a variable rate compulsory superannuation saving scheme. This way the supply of money in the economy can be regulated and reinvested in productive activity without damage to the trading sector”.

“At present, the focus remains on the symptoms of the problems facing exporters and not the underlying causes. New Zealand’s policy framework is creating an imbalance in the economy and the domestic sectors generate more than twice the inflationary pressure of the trading sector. Yet as long as the OCR is the only lever available to the RBNZ, nothing will change, the NZ dollar will remain strong on speculative pressure and conditions will not improve for our exporters”, says Mr. Walley.

NZMEA – the authentic and independent voice for manufacturers and exporters.

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