CTU supports calls on RBNZ to hold back

CTU supports calls on RBNZ to hold back on interest rate hikes

The CTU, which opposed the Reserve Bank’s June increase in interest rates, has joined calls for the Bank to hold off any further increases.

“We still have high unemployment levels in New Zealand and people are very cautious in their spending,” said CTU Economist and Policy Director Bill Rosenberg. “There is a low risk of inflation taking off despite the spike likely early next year due to GST, the effect of emissions trading, and other government policy changes.”

“At any rate, the risk of New Zealand returning to recession in the light of international conditions means that inflation should be a secondary consideration.”

“Governments in Europe are on a self-destructive round of big cuts in government spending that increase the risk of a second dip into recession. The US economy is not showing signs of a sustained recovery. Some international commentators such as Nobel Memorial Prize economist Paul Krugman are warning of the risk of full blown depression as a result.”

New Zealand’s increasing exports are largely driven by high prices for a relatively small number of commodities and demand from East Asia which could slow if their exports to Europe and North America are throttled by austerity measures there. Manufacturing has had a few good months of exports but this was helped by a more favourable exchange rate with Australia which has now reversed.

“The New Zealand government seems to have no Plan B if world recovery falters,” said Rosenberg. “It should be getting ready a stimulus package such as infrastructure projects, new housing, increasing opportunities for tertiary education and skill development, and further support for employment and people who lose their jobs if there is a turn for the worse.”

“It is important that the Reserve Bank is particularly cautious under these conditions.”

ENDS