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US Interest Rate Cut Warning For NZ

5 January 2001

The unexpected US interest rate cut should be a warning against being overly optimistic about the New Zealand economy, National's Finance spokesperson Bill English said today.

"For the first time, commentators are using the 'R' word in the United States - 'R' for recession.

"The Federal Reserve decided that the US economy is slowing faster than they had been expecting. Commentators have pointed out that the interest rate cut was made several weeks ahead of a scheduled interest rate review and this underlines the urgency of addressing the slowdown in the US economy.

"None of this is good news for New Zealand. Our current export kick is driven mainly by the low dollar. A slowdown in the US means that our dollar is likely to rise against the US dollar, as it has done sharply in the last two months. That will take some of the steam out of exporters' expectations of higher prices.

"Meat and milk have driven the economic recovery in New Zealand. The same markets that have been strong because of US growth will be weakened by the US slowing sharply. That would mean less demand for our export products and lower prices.

"Right now we are relying on high prices for meat and milk. The US interest rate cut signals that prices for our export commodities won't stay up forever. Once those commodity prices come down, New Zealand's prospects aren't good and the gap between us and the rest of the world will continue to open up," Mr English said.

Ends


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