08 March 2007

Cash Rise Regrettable

CTU Economist Peter Conway said today that while he acknowledges the Reserve Bank is responding to perceived underlying inflationary pressures that could threaten the 3% limit in 2008, it is hard to understand why interest rates should rise when the exchange rate is so high, there are regular announcements of factory closures, wage rises continue to be modest, GDP growth is at a low level, and inflation is predicted to fall below 2% in mid-2007.

Peter Conway said the only good news in today's statement was the acknowledgement that other levers are needed to moderate the housing market. Home affordability is a huge issue for workers who have seen house prices double in 5 years, he said.

"No-one wants high inflation," Mr Conway said. "However it is debatable whether today's announcement is necessary given trends in inflation and in any case will have much impact on the housing sector. But it will impact on jobs in the export sector, slow economic development, and make it harder for low income workers who have recently taken on mortgages in an overpriced housing market."

ENDS

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