8 March 2007

Rate rise will cause pain but is it worth it?

Progressive Leader Jim Anderton expressed concern today about the impact that a rise in the official cash rate could have on exporters.

“Today’s rise, and the foreshadowing of further rises, is likely to stimulate further demand for the Kiwi dollar. Our exporting community need this like a hole in the head,” said Jim Anderton.

“I’m not convinced that the official cash rate mechanism will cool down the property boom or inflation – we already have some of the highest real interest rates in the developed world but property prices continue to rise. So if the mechanism is not having the desired effect then we are sacrificing our exporters for limited overall gain for New Zealand.

“Today’s rise was probably inevitable, within the current framework, given that the economy and the housing market has rebounded so well. But it is hard to see how the current heavy focus on price stability serves the national interest if it comes at the expense of our most important productive sectors. We need to find a better way and I am pleased that the Reserve Bank is continuing to look at alternative measures.

“From a longer term perspective it remains a major concern that our approach to monetary policy may underpin a higher Kiwi dollar than is desirable for the long-term sustainable development of the primary industries, upon which New Zealand’s prosperity depends.

“There is no doubt New Zealanders need to save more to reduce our demand for foreign capital, and in turn take pressure off our exchange rate. The Government has been doing its bit with the Superfund and Kiwi Saver but New Zealand households need to be doing their bit too. Financial institutions should temper their efforts to load households with debts that might be unsustainable,” said Jim Anderton.

“Whilst the recent fall in the value of the Kiwi Dollar has been welcome, the current volatility makes life difficult for all who depend on overseas trade and trade is the lifeblood of the New Zealand economy.”

The Progressives believe that ways should be found to reduce the volatility that springs from our dependence on short-term speculative capital flows, often induced by monetary policy moves to change the Official Cash Rate.

ENDS

© Scoop Media