12 March 2014

Reserve Bank research shows OCR rise to cost up to 30,000 jobs

The National Government’s failure to contain rising house and power prices is to blame for the coming increase in interest rates that will cost up to 30,000 jobs, Green Party Co-leader Dr Russel Norman said today.

Reserve Bank papers obtained by the Green Party via the Official Information Act show that a 1% rise in the Official Cash Rate (OCR) reduces economic output by 0.5%-1% and increases unemployment by 0.5%-1.2% compared to the situation if the OCR wasn’t raised. That equates to 12,500-30,000 fewer jobs in the economy than if the OCR wasn’t increased.

The Reserve Bank is forecast to raise the OCR by around 1% in the coming year to tackle inflation,which is being largely driven by house and power price rises.

“National’s failure to get house and power prices under control is going to mean higher interest rates and up to 30,000 fewer jobs for New Zealanders,” said Dr Norman.

“If National had stabilised the housing market and bought power prices down, the Reserve Bank would not be moving to put up interest rates.

“Rising interest rates mean less household spending, reduced business investment, and a higher exchange rate – all of which mean fewer jobs.

“Inflation isn’t rising because the economy is strong. The inflation we’re seeing is due to poor policy choices driving price rises in the non-tradable sector.

“There are 50,000 more Kiwis unemployed than when John Key came to power. National’s bad economic management will make it harder for those Kiwis to get back into work.

“The Greens have launched a suite of policies that will stabilise the housing market and lower power prices. These policies would make living more affordable for families and help to keep interest rates down.

“The Greens will focus on keeping interest rates down so that mortgages are affordable, businesses can invest, and the exchange rate is lower for our exporters. Our plan means are more jobs for Kiwis. National’s inaction will cost jobs,” said Dr Norman.

Additional information:
An estimated small open economy model with frictional unemployment pages 20-21
Shocked by the world! Introducing the three block open economy FAVAR pages 22, 2

ENDS

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