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Interest rate rises ahead

Jim Anderton Interest rates are set to rise steeply for households and businesses before the end of this year, even though real interest rates are already near record levels, Alliance leader Jim Anderton is predicting. And he says Mrs Shipley's Government can't dodge the blame.

Since taking on the informal role of parliament's interest rate watchdog, Jim Anderton says he has successfully forecast every recent rise in interest rates.

'Real home mortgage interest rates - the difference between floating rates and inflation - are already around 7.5%, which is near to a record high. Now, it's going to get worse.

'The June trade figures published yesterday are very serious. We should normally run a trade surplus at this time of year, yet we ran the biggest June deficit ever. Coming right after disastrous May trade figures, we are now looking at the prospect of a balance of payments blow-out, with a current account deficit as high as 7.3-7.5% of GDP.

'The poor trade figures combined with the rising current account deficit mean that interest rates will rise for two reasons.

'First, lenders will demand a higher risk premium from New Zealand. The country is headed for a credit down-grade because our overseas debt is huge at over $103 billion and with the balance of payments deficit in such grave shape the debt is getting worse all the time.



'Second, the dollar is likely to fall as a result of the deficit. The lower dollar pushes up the price of imported goods, sending the Reserve Bank into cardi ac arrest. Dr Brash will sharply increase interest rates, although I have a suspicion he might just try to hold out until after the election.

'Mrs Shipley's government has to take responsibility for the trade performance that has caused this mess. They suddenly and unilaterally abolished tariffs on imported cars. Not only did they wipe out ten thousand jobs and an entire car assembly industry, car imports are up 44% at a cost of more than a billion dollars.

'The Government has singularly failed to provide any support for new in! dustries or to help diversify New Zealand's export base. It has left us over-exposed to our traditional export sectors, and we are paying the price of a slow decline in world commodity prices,' Jim Anderton said.

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