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Speculation on interest rate rises not justified

Media statement Wednesday, December 18, 2013

Speculation on interest rate rises not justified

The presumption that interest rates will rise early in the New Year is precipitate and unjustified, the Employers and Manufacturers Association says.

"What we are hearing is that interest rates will surely rise early next year but it isn't necessarily so," said Kim Campbell, EMA's chief executive.

"This speculation from many economic commentators is precipitate and misleading.

"It does not necessarily follow that because the economy is recovering that interest rates must also rise.

"To the contrary, the evidence is strong they could be delayed for many months if needed at all.

"Inflation is still low, well within the Reserve Bank's 1-3 per cent CPI band, and exchange rates, both with the US and Australia, are very high.

"The world is awash with capital on the back of US, European and Japanese expansionary money printing activity.

"High commodity prices are rewarding primary producers but hurting our other employment and skills rich exporters.

"The Reserve Bank itself says 'The high exchange rate is a particular headwind for the tradables sector and the Bank does not believe it is sustainable.'

"On the domestic market, the LVR's are working; Finance Minister Bill English says house price inflation has peaked.

"Who would want interest rates to rise? Business certainly does not, and neither does anyone with a mortgage.

"Interest rates rising too early would put at risk our fragile recovery."

ENDS

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