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OCR Rise A Failed 'Snake Oil' Remedy



The Secretary of the Democratic Party, Trevor Crosbie, has called on the Reserve Bank to reverse its latest hike in the OCR.

"The justification being used for upping the OCR is the increasing inflationary expectations due to rising costs in a variety of items within the New Zealand economy" said Mr. Crosbie " In layman's terms there is a raft of goods and services that are getting more expensive to buy and the only way the Government/Reserve Bank can see to offset those price rises is by increasing the amount we pay for our money, be it mortgages, credit cards or business capital"

The problem of ever increasing prices is not going to be solved by using historic remedies for demand inflation (to much money chasing to few goods) when the issue driving most of the current inflationary process is added cost.

"Indeed" continued the Democrat Secretary, "the Reserve Bank tugging on the single lever of increasing the OCR by a quarter of a per cent will add about $24 a week (per $100,000 of debt) to the cost of money for home owners, renters and for businesses. If that is not a direct contribution to additional cost and therefore inflationary pressure then all the orthodox text books on pricing need to be re-written, because they clearly indicate increases in interest rates flow through the chain of production and distribution and into the market place as increased prices"

"At least the voter can take comfort from the Governor of the RB, Dr. Bollard, and the two resident experts in the National and Labour parties, Drs. Brash and Cullen being in complete harmony over the decision to increase the cost of living. It will make the decision to vote in 2005 for a real reform party like the Democrats that much easier. We intend to cure inflation, not just give it the occasional dose of old fashioned economic snake oil" concluded Mr. Crosbie


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